It has been a while, but I am back. 

As I sit here scratching my head, I am pondering – as are so many others – what the interplay between President-elect Trump’s proposed policies will bring to the U.S.  Indeed, also pondering what the interplay between him and others in his possible Cabinet will bring to the U.S.  For example, he has spoken of giving Elon Musk some position or at least say in the government, but Elon’s plan to reduce the federal deficit by $2 trillion does not seem wholly consistent with Trump’s low tax/high spend governing style. 

Trump is planning some moves that will undoubtedly save federal tax dollars (and shift the burden to the states), like elimination of the Department of Education and reducing funding to others like the EPA and CDC.  Further, he will undoubtedly limit our aid to allies like Ukraine and countries in NATO, which will save dollars (at least in the short term).  And then there is the money raising/tax reducing proposal of levying tariffs on all foreign goods entering the U.S., which could be anywhere from 10% to 100%.  But on the flip side of this coin, he intends to deport millions of foreign migrants, both illegal and legal, which could easily cost hundreds of billions to achieve logistically.  So, how will these policies interact?

Let’s focus on the interaction between the tariffs and the deportations, which is perhaps not an interaction most would anticipate, but it is there.  There are a host of studies out there on how the tariffs will not be borne by the foreign manufacturers as much as by the U.S. consumers.  The tariffs will largely be passed on to consumers as prices will rise on these foreign made goods, but the plan is largely for consumers to shift their purchases to goods manufactured in the U.S. of A.  There are various problems with this “plan” that are worth considering.  First, U.S. manufacturers like to make a profit and the more the better.  If they can make just as much in increased profits by raising their prices to match foreign goods as they can by manufacturing a lot more goods at the current price, guess which they will choose to do.  Certainly some will balance the two and raise prices some, but not up to the level of foreign goods.  They will then increase production to meet increased demand. 

There is at least one problem with such a plan – deportation. Like it or not, migrants – both legal and illegal – are doing a host of jobs, millions of jobs, that U.S. citizens simply do not want to do.  The unemployment rate in the U.S. is already low (even with the migrants here) and there seem to be a host of companies still hiring.  Nonetheless, the President elect has plans that in theory will boost American manufacturing while at the same time vastly reduce the available workforce for doing so.  This will force employers to increase wages to attract more domestic workers, which will then be passed onto consumers, but even then, there will not be enough workers to fill the void.  Supplies will be constrained, and prices will rise even more.

A factor many are ignoring is one that some other advanced economies are also actively dealing with – an aging workforce.  Younger generations are not having babies fast enough to replace the aging workforce. This has become a major problem in various countries like China, which has shifted from the one-child policy it had in place up until 2015 to a three-child policy today with emphasis on a “pro-birth culture.”  Japan and South Korea have similar issues, as does the United States.  Baby boomers are aging, and the costs of Social Security and healthcare are increasing.  The number of people in the U.S. 65 or older is expected to go from 62 million today to 82 million in 2050.  Yet the average birth rate for American women reached a historic low this year with each woman on average giving 1.6 births in a lifetime, i.e. the younger population is shrinking.

Long story short, if migrants who are properly seeking asylum were processed and allowed to stay while those who have committed crimes or are not properly seeking asylum were deported, the net effect could be a benefit to the U.S. economy – especially if we are going to hit imports with higher tariffs.  But this will not happen, so tariffs will limit foreign supplies, deportations will limit U.S. production, and prices will skyrocket.  Inflation is back, baby.  Or, to quote a great song, "hello darkness my old friend."

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