Elon Musk has arguably done more than any single individual to aid Donald Trump’s campaign. The mega-billionaire has put more than $75 million toward electing the former president, turned America’s most politically influential social media platform into a vehicle for right-wing propaganda, orchestrated a (shambolic) get-out-the-vote effort, and repeatedly appeared beside Trump on the campaign trail.
Now, as the race enters its homestretch, Musk is trying to clinch Trump’s victory with a bracing closing argument: If our side wins, you will experience severe economic pain.
If elected, Trump has vowed to put Musk in charge of a new “government efficiency commission,” which would identify supposedly wasteful programs that should be eliminated or slashed. During a telephone town hall last Friday, Musk said that his commission’s work would “necessarily involve some temporary hardship.”
Days later, Musk suggested that this budget cutting — combined with Trump’s mass deportation plan — would cause a market-crashing economic “storm.”
On his social media platform, X (a.k.a. Twitter), an anonymous user posted Tuesday that, “If Trump succeeds in forcing through mass deportations, combined with Elon hacking away at the government, firing people and reducing the deficit – there will be an initial severe overreaction in the economy…Market will tumble. But when the storm passes and everyone realizes we are on sounder footing, there will be a rapid recovery to a healthier, sustainable economy.”
Musk replied, “Sounds about right.”
This is one of the more truthful arguments that Musk has made for Trump’s election — which is to say, only half of it is false. If Trump delivers on his stated plans, Americans will indeed suffer material hardship. But such deprivation would neither be necessary for — nor conducive to — achieving a healthier or more sustainable economy.
Already, US retailers are saying that they will increase prices if Trump is elected in order to offset the impact of his 10 percent universal tariff on imports. And contrary to Trump’s suggestion, those painful price hikes would not yield a stronger US manufacturing industry in the long term.
Trump’s plans for mass deportation, meanwhile, would trigger severe labor shortages in the construction and agricultural sectors, rendering food and housing more expensive. And these immediate disruptions would not raise American wages in the long run, but rather, make the economy less productive, and Medicare and Social Security more difficult to sustain.
Musk’s plans for slashing federal spending would be similarly calamitous. He has offered few details about his vision for downsizing Uncle Sam, but recently suggested that the federal government’s $6.75 trillion budget should be cut by at least $2 trillion. Austerity on that scale would disrupt myriad government services on which Democrats and Republicans rely, while threatening to throw the US economy into severe recession. And there is little basis for believing that an economic paradise would rise from such ruins.
Trump’s tariffs would raise consumer prices without aiding the broader economy
The first component of the joint Trump-Musk economic vision is a sweeping tariff regime. Trump has promised to impose a 10 percent to 20 percent universal tariff on all imports, and an at least 60 percent tariff on imports from China.
He claims that the cost of these duties would be borne by foreign producers. The theory behind that claim (to the extent that Trump has one) is that overseas companies would feel compelled to fully offset the impact of the tariff for US consumers: Since their goods would face a 10 percent sales tax in the US — while the goods of their American competitors would face no tax — exporters would cut the prices of their goods by 10 percent, and accept lower profit margins, in order to maintain their products’ competitiveness on the US market.
But this idea is dubious in theory, and patently false in practice. For one thing, there are many products and commodities that cannot be produced in the United States. Putting a 10 percent tariff on Colombian coffee beans will not make it possible to grow coffee at scale in the US. A Colombian Arabica exporter would therefore have no incentive to lower their prices in response to Trump’s tariff, for fear of getting outcompeted by nonexistent US rivals.
Another, even larger problem for Trump’s theory is that American manufacturers cannot produce many of their wares without foreign-made components. Putting a tariff on all imports therefore increases domestic firms’ cost of production. And many American companies are already telling investors and the public that they will raise prices in order to offset that increase in costs.
“If we get tariffs, we will pass those tariff costs back to the consumer,” the CEO of AutoZone, an American auto parts retailer, recently said on an earnings call. “We’ll generally raise prices ahead of — we know what the tariffs will be — we generally raise prices ahead of that.”
As the Washington Post reports, Columbia Sportswear and Stanley Black & Decker have announced similar plans.
For these reasons, among others, Yale’s Budget Lab estimates that Trump’s tariffs would raise consumer prices by as much as 5.1 percent, or $7,600 per household (in 2023 dollars).
Critically, this immediate pain for US consumers would not translate into durable gains for America’s manufacturers. To the contrary, Trump’s tariffs would likely hurt American exporters.
As already mentioned, his tariff would raise input costs for American producers. And that would render such manufacturers less competitive in the global market, leading them to lose market share.
Indeed, the small-bore tariffs that Trump applied during his first term demonstrated this problem. Economists at the University of California San Diego, the Census Bureau, and the Federal Reserve studied the impacts of Trump’s tariffs on steel, aluminum, solar panels, and various Chinese goods. They found that American exporters who were most exposed to tariffs on their inputs saw lower export growth in 2019 than exporters who were unaffected by the duties. And the impacts would likely be significantly larger for a universal tariff that raised the cost of every foreign input to the production process.
At the same time, Trump’s tariff would run afoul of America’s obligations under various free trade agreements. And other nations would respond by imposing retaliatory tariffs on American-made goods. Again, Trump’s far more modest experiments with protectionism in his first term illustrated the problem. As America’s trade partners imposed retaliatory duties on US agricultural products, American farmers suffered a $27 billion loss in exports between mid-2018 and the end of 2019.
Further, a 2019 analysis from the Federal Reserve found that US manufacturers exposed to tariffs saw relative reductions in employment as the harms of higher input costs and retaliatory tariffs outweighed the benefits of protection from import competition.
Thus, Trump’s tariffs would make life more expensive for consumers in the short term, and American manufacturing less competitive in the long run.
Deporting undocumented immigrants en masse would make America poorer
Trump also plans to deport undocumented immigrants, including law-abiding workers who’ve long lived in the US. In addition to the human suffering mass deportations would cause, such a plan would impose immediate economic pain with no compensating long-term benefit.
Rapidly removing millions of undocumented workers from the economy would devastate the agricultural and construction sectors, where such immigrants make up roughly one-third and one-quarter of the workforce, respectively. This would render both food and housing more scarce, and thus more expensive (at least in the immediate term).
The disappearance of millions of working-age people who pay Social Security and Medicare taxes would also expedite the insolvency of those programs. As the American population ages over the next five years, it will need to add 240,000 workers each month to keep pace with retirements, according to a recent study. Trump’s program would make this virtually impossible to achieve.
Trump’s supporters argue that these harms will be offset in the long run by huge wage gains for native-born Americans, who will no longer need to compete with undocumented workers for jobs. But this is a fallacy.
American workers’ bargaining power is determined by the balance between the demand for labor in the economy and the supply of workers. When employers have a high appetite for labor but a limited pool of applicants, workers can secure better pay and conditions. This economic circumstance is commonly described as a “tight labor market.”
Mass deportation would reduce the supply of workers in the US economy. But it would also reduce demand for American labor: Immigrants are human beings who purchase goods and services in order to survive and enjoy themselves. Consequently, deporting millions of undocumented immigrants wouldn’t necessarily make labor markets tighter. And in any event, such a destructive policy is unnecessary for creating a favorable environment for US workers.
It’s more than possible to simultaneously generate a tighter labor market and grow the population of workers through immigration. In fact, this just occurred: In 2022 and 2023, an estimated 6 million people immigrated to the US. Over that same period, unemployment fell to historic lows, while wages rose and pay inequality fell.
This was not an aberrant outcome. As economics blogger Noah Smith notes, economists have studied the economic effects of myriad immigration waves, and tend to find no negative impact on native-born workers’ wages or employment prospects.
Meanwhile, immigrants tend to increase an economy’s labor efficiency. This is because immigrant workers are far more willing to move in response to shifting economic conditions than native workers who have deep roots in particular US communities. Immigrants are therefore uniquely effective at filling shortages in local labor markets. By plugging these holes, they render other workers in those places more productive. The Harvard economist George Borjas has estimated that such productivity gains generate between $5 billion and $10 billion of economic value for native-born workers each year.
Thus, Trump’s immigration plans would make US consumers poorer in the near term, while reducing the size and productivity of the American economy on a longer time horizon.
Gutting air safety, meat inspections, and food stamps will not make the economy healthier
Finally, Elon Musk’s fiscal plans — which Trump supposedly intends to implement (at least, according to Musk) — would severely disrupt the provision of government services and increase unemployment, while hurting the economy’s long-term growth prospects.
During Trump’s rally at Madison Square Garden, Cantor Fitzgerald CEO Howard Lutnick asked Musk, “How much do you think we can rip out of this wasted, $6.5 trillion Harris-Biden budget?”
This was evidently a reference to the 2024 US federal budget, which is actually $6.75 trillion.
“I think we can do at least $2 trillion,” Musk replied.
This proposal is so radical that it has attracted criticism from fiscal conservatives who support the broad goal of cutting federal spending. Brian Riedl, a senior fellow at the right-wing Manhattan Institute, told the Washington Post this week, “The idea that one can cut $2 trillion in wasteful and unnecessary programs is absolutely absurd.”
The reason is simple. According to government watchdogs, actual waste and fraud amounts to less than $300 billion a year. Shaving $2 trillion off the federal budget would therefore require draconian cuts to many popular federal programs.
Were Trump to implement Musk’s vision while simultaneously honoring his promise to avoid cutting entitlements and the GOP’s commitment to avoiding defense spending cuts, then he would need to slash all other government programs by 80 percent. That would involve gutting all social services for low-income Americans, food inspections, air safety, health insurance subsidies, and infrastructure investments, among countless other things.
This would abruptly and massively reduce demand in the US economy, potentially triggering a recession.
There is little reason to expect such severe and haphazard spending cuts to benefit the economy in the long term. After all, government investments in education and infrastructure often increase the economy’s growth potential — slashing funding for such programs could impair America’s economic performance in the coming decades.
The best argument for Trump’s economic agenda is that he might not act on it
Elon Musk is correct to say that Trump’s plans would impose hardship on the American people. But he’s wrong to describe such difficulties as temporary. If Trump and Musk get their way, America’s consumers will pay higher prices, its manufacturers will sell fewer exports, its agricultural industry will fall into chaos, its workforce will become less productive, its federal government will struggle to provide basic services, and its long-term economic growth potential will fall.
Trump’s supporters might reasonably argue that none of this should trouble us, since he rarely fulfills his campaign promises and will surely back away from his economically ruinous agenda once in office. But “don’t worry, our candidate is a huge liar” does not strike me as a much better message than “prepare for temporary hardship.”
