Donald Trump’s pledge to raise trade barriers and deport immigrants could be political blows that trigger a recession, JPMorgan’s David Kelly told Bloomberg TV.
In an interview on Monday, the global chief strategist noted that there is little reason to fear a decline now, but a possible Republican victory in November could lead to a decline.
There are several essential propositions at stake. On trade, Trump has announced plans for a universal 10% tariff on all US imports, and has separately announced higher tariffs as a replacement for some income taxes.
On immigration, the Republican candidate has promised to carry out the largest deportation program in US history. In another measure, he has also said his administration will deport all undocumented workers, a total of about 7.5 million people, the Peterson Institute recently estimated.
“If you take Trump at his word, you have much higher tariffs. Now, tariffs are an elixir for stagflation. Tariffs slow growth and increase inflation at the same time,” Kelly said. “If you took his word for it on immigration, the economy would grind to a halt because of deporting undocumented immigrants or illegal immigrants.”
Kelly’s remarks echo a long list of similar criticisms Trump’s plans have received.
Recently, former Treasury Secretary Larry Summers has denounced the tariff-income tax swap as the “mother of all stagflation,” since trade duties provide nowhere near as much revenue as domestic taxes currently do.
Meanwhile, analysts have recognized immigration as a key driver behind the post-pandemic labor market, with immigrants taking on lower-paying roles that have kept employment steady.
Peterson Institute President Adam Posen said last week that expelling these workers would essentially deplete the labor supply and could start a manufacturing-based recession.
For Kelly, it is worth considering how realistic Trump is about the implementation of his proposals, noting that not everything he previously promised was implemented.
Still, it’s something to think about, he said. “I mean, a political coup could absolutely send this economy into recession.”
Right now, the economy is looking good, Kelly said. He noted that although spending is falling among lower-income consumers, this has been offset by wealth gains, as well as job and wage growth.
“Consumer spending will grow more slowly, somewhere around one and a half percent going forward in the rest of this year, compared to 2%,” he said. “But this is still enough.”
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