Oxford Economics: Inflation to Rise Regardless of 2024 Election Outcome

Inflation is set to rise regardless of the 2024 election outcome, according to Oxford Economics. Their analysis suggests varying degrees of impact based on policies implemented by either Biden or Trump.

Oxford Economics: Election Outcomes to Influence Inflation Trends

In recent months, there have been indications that inflation has begun to decrease, but a prominent research firm predicts it will continue to increase. And the rationale? In the words of a Clinton-era political adage, "It's the election, stupid."

Oxford Economics anticipates inflation will rise regardless of whether Joe Biden or Donald Trump secures a highly sought-after second term. The query is, "How much?" Oxford asserts that both administrations' policies are inflationary, albeit in distinct manners. Although the economy's general trend lines will remain consistent regardless of the White House or Congress's control, the degree they advance could vary significantly from one political reality to another.

“It’s only the degree to which GDP and inflation are higher under the next president that differs depending on the political configuration,” wrote Oxford Economics deputy chief U.S. economist Bernard Yaros Jr. in a research note published last week.

According to Oxford Economics' analysis (via Fortune), peak inflation would be 0.6 percentage points higher than the current 3.3% under a Trump presidency. This implies that inflation would reach 3.8%. Oxford predicts that inflation would be only 0.1% higher than it is currently under Biden.

Trump's draconian immigration policies would reduce the available workforce, further reduce corporate tax rates, and, most significantly, create an unprecedented set of tariffs on all foreign products, which would be the primary drivers of inflation. In the interim, Oxford Economics anticipates that Biden will temporarily extend the Child Tax Credit, which will result in a near-term increase in inflation as low-income families spend their tax refunds when the economy requires less expenditure. Yaros informed Fortune that the inflationary surge would eventually transition into a period of consistent economic expansion.

In the long run, “family support policies stimulate growth without raising inflation because they boost the economy, not by having people spend, but by allowing more working mothers to participate in the labor force,” he said.

Yaros' analysis indicates that inflation would not decrease or remain at its present levels under either Biden or Trump.

During his two-day Senate testimony on July 9 and July 10, Federal Reserve chair Jerome Powell expressed a slightly more optimistic outlook regarding inflation's decline. Powell maintained his reticence regarding the precise date inflation would approach the Federal Reserve's 2% objective.

Impact of Political Dominance: Inflation Risks Amid Sweeping Economic Policies

However, Yaros will find it even more challenging to manage inflation if Democrats or the Republicans secure the White House and control of Congress. "The incentive to implement numerous changes—whether they are spending increases or tax cuts—will be too significant to disregard if either party achieves a successful sweep," he stated.

Nevertheless, this does not imply that the inflationary consequences will be identical. According to Yaros, Trump's proposed tariffs would be particularly inflationary, contributing a "substantial portion" to the price increase. Trump's fondness for tariffs was evident during his inaugural term, as he referred to himself as a "Tariff Man."

Yaros is under the impression that he would be successful in enacting his recently announced universal tariffs during a Trump presidency. Trump's proposal is unprecedented: it imposes a 60% tariff on all Chinese products and a 10% tariff on goods from any other country. If implemented, these tariffs would function as a tax on American households, as businesses would increase their prices and pass on the resulting costs to consumers.

Other economists have concurred with Yaros regarding the potential inflationary effects of the tariffs. According to various studies, Trump's proposed tariffs were estimated to result in an annual increase in household expenses of $1,700 to $2,350.

In an interview with Time magazine in April, during which Trump reiterated his tariff policies, he acknowledged that they had increased prices. However, he denied that the increase would be inflationary. "I am skeptical that inflation will be the cause," the former president said. "I believe that our nation will not suffer any losses."

Economists have cautioned that Trump's proposal could result in a full-scale trade conflict with China and other nations. Alan Wolff, a former deputy director of the World Trade Organization and a fellow at the Peterson Institute for International Economics, predicts that China would likely respond with its own set of tariffs on American products, further damaging businesses.

In an interview with Time magazine in April, during which Trump reiterated his tariff policies, he acknowledged that they had increased prices. However, he denied that the increase would be inflationary. The former president stated, “I don’t believe it’ll be inflation,” the former president said. “I think it’ll be a lack of loss for our country.”

Economists have cautioned that Trump's proposal could result in a full-scale trade conflict with China and other nations. Alan Wolff, a former deputy director of the World Trade Organization and a fellow at the Peterson Institute for International Economics, predicts that China would likely respond with its own set of tariffs on American products, further damaging businesses.

“For the Trump approach to somehow work, one has to assume there’s no foreign reaction…no retaliation,”Wolff said.

According to Wolff, Biden has also implemented tariffs, but he has done so strategically. "The Biden approach is a selective consideration of how we can provide an advantage to domestic production in areas where we have determined that domestic production is necessary," Wolff explains. “To observe the outcome, Trump is advocating for increased tariffs on a global scale."

Biden's high tariffs guarantee that specific products deemed in the national interest are not dependent on global supply chains. These products include semiconductors, a national security priority, and technologies necessary to address climate change, which Wolff notes is not a priority for Trump. In May, the Biden administration imposed a series of tariffs on China, which included a 50% tariff on computer processors and a variety of other taxes on foreign solar cells, EVs, and the batteries that power them.

Although Biden has adopted a more strategic stance toward Chinese tariffs, recent statements from a senior Treasury official indicate that his administration will not reduce the current level of tariffs. On July 10, Biden announced new tariffs on Chinese steel imported from Mexico into the United States. This measure has been historically perceived as a means to circumvent trade regulations.

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