By Paul Krugman
In recent years, constantly, voters have expressed their intense frustration over inflation to pollsters and commentators. Now, we have elected a president who, if he acts on two of his key campaign pledges — universal tariffs and mass deportation of undocumented immigrants — is likely to trigger significant inflation.
How will the electorate respond?
I have previously discussed the probable inflationary consequences of Donald Trump’s strategies. That analysis remains valid. However, I have not emphasized enough the particular impacts of his deportation plans on grocery and housing prices, both of which have become political flashpoints.
First, let’s note the context regarding deficits: The nonpartisan Committee for a Responsible Federal Budget estimates that Trump’s tax proposals would increase the national debt by nearly $8 trillion in the coming ten years.
Trump asserts that he can offset tax reductions with revenue from tariffs and massive cuts in government expenditure, yet these assertions are highly unrealistic.
Deficits — contrary to what you might sometimes hear — do not inherently lead to inflation. Following the 2008 financial crisis, fears about inflation resulting from deficits were proven incorrect because, as basic economic theory suggests, deficits are not inflationary in a depressed economy. Even President Joe Biden’s substantial spending in 2021 occurred in a climate of low employment, and the inflationary effects were further eased by an influx of immigrants, which expanded the labor force and aided in meeting heightened demand.
Nonetheless, starting from a near full employment economy in his second term, Trump’s mass deportations would reduce productive capacity, inflate deficits, and — indeed — cause inflation to surge, honor a harsh immigration policy while failing to deliver relief to American consumers.
Here’s what I mean: If grocery prices frustrate you now, imagine the consequences if Trump targets a substantial segment of the agricultural labor force; immigrants constitute around three-quarters of agricultural workers — and about half of them are undocumented. (And do you really think many lawful workers won’t be ensnared in Trump’s threatened roundups?) Undocumented immigrants also play a crucial role in food processing. For instance, they represent an estimated 30% to 50% of the workforce in meatpacking.
If these workers face deportation, the food industry will likely struggle immensely to find replacements. Even under the best circumstances, the industry would need to provide significantly higher wages — and these escalated wages will naturally result in increased prices.
(Furthermore, while we generate a majority of our food, we also import a significant amount — the prices of which would rise due to tariffs.)
When considering the broader economic repercussions of deportations, it’s not solely about food prices; it also pertains to housing expenses. The solution to this issue is to construct more housing units. However, undocumented immigrants constitute more than a fifth of the construction sector’s workforce, thus deportations would severely impede efforts to boost housing availability. (And no, contrary to JD Vance’s statements, immigration hasn’t been the driving force behind the recent increase in housing prices.)
Can we easily compensate for the loss of these workers by substituting them with native workers? Not at all. Employment among native-born individuals in their prime working years is currently at its highest point compared to any time during Trump’s first term. There simply isn’t a large pool of unemployed native-born Americans ready to fill those roles.
What will Trump do if inflation escalates? Keep in mind that his campaign was filled with misleading statements — regarding immigration, jobs, inflation, crime, and more. One of his typical strategies for dismissing evidence that contradicts his claims involves arguing that the data is fabricated.
Therefore, if he enforces high tariffs and executes his plans for an immigrant dragnet — and a vital segment of our workforce is devastated and Americans begin to experience the inflationary effects — don’t anticipate Trump to concede that he misjudged the situation. The more probable scenario is that he will deny reality or attribute blame to external factors and attempt to force prices down again. But if you believe the president can simply wave his hands and reduce the price of a dozen eggs, I have news for you. (It’s worth mentioning that Hungary’s prime minister, Viktor Orban, who is admired by Trump, has sought to suppress inflation through price controls, which resulted in disastrous consequences.)
Additionally, let’s not forget the human aspect. The idea of millions of individuals, who have come to America seeking better lives, being rounded up and deported is horrific. To borrow a phrase, the cruelty underlying Trump’s proposed deportations is part of the agenda. However, to the extent that Trump promotes the notion that removing immigrants without permanent legal status would enhance the economic prospects for working- and middle-class Americans, this is yet another instance where his rhetoric and his calculations simply don’t align.
Currently, inflation is not my foremost concern. It pales in comparison to the threat that Trump represents — has represented — to our democracy. Yet it will significantly impact many Americans, including many of his voters, and the nation’s future will heavily depend on how they respond upon realizing they were misled by Trump’s claims regarding his economic management abilities.
