Donald Trump will trigger a “period of chaos” and sharp price hikes if he repeals Joe Biden’s production tax breaks and raises tariffs as planned, the White House’s top economic adviser said.
Lael Brainard, director of the National Economic Council, told the Financial Times that Trump’s plan to kill the Deflation Act and the Chip and Science Act — President Biden’s signature legislation — would hurt productivity of the USA.
“What would be very disturbing is if you saw sweeping tariffs,” Brainard said in an interview. “We want to empower our manufacturers through [the] protect the credits in the historic investment laws enacted by this administration and not throw us back into a period of chaos and price increases.”
Brainard, who was a Federal Reserve vice chairman before joining the Biden White House, warned against Trump’s protectionist plans for blanket import levies.
The president-elect’s plan for universal tariffs — which he said could reach 20 percent — was “important to avoid,” he said.
“Many of our top manufacturers have some inputs that are imported, and so the tariffs need to be designed very carefully to ensure that they strengthen and not undermine American manufacturers and US jobs,” Brainard said.
Her warnings come as Trump selects his financial team ahead of his return to the Oval Office in January. Along with the tariffs, he has pledged to carry out mass deportations of immigrants and repeal the IRA and the Chips Act, the centerpieces of Biden’s industrial policy.
The two laws included more than $400 billion in federal incentives designed to break China’s grip on critical supply chains — and have made the US attractive destinations for investment in clean technology and semiconductor manufacturing capacity.
The FT estimates that investors have committed nearly $400 billion to large-scale manufacturing projects since the two laws were passed.
“Communities that have been left behind are now benefiting from new businesses and new jobs,” Brainard said in an interview. “There’s a real constituency for continuing this manufacturing renaissance that’s underway.”
Trump has promised to “end” the IRA, saying tariffs are a better alternative to protect American businesses and workers.
“This chip deal is so bad,” Trump said on Joe Rogan’s podcast in October. “We have billions of dollars available for rich companies to come. . . all you had to do was invoice them.”
Economists and manufacturers have also expressed concern about Trump’s tariff plan, saying the additional levies will raise prices and slow economic growth.
“As a manufacturer, it really complicates your life,” said Suvi Sharma, CEO of Solarcycle, a solar panel recycling company that is building a $406 million project in the state of Georgia with IRA support. “Tariffs and tariffs can have a really positive impact. . . if done more methodically than carte blanche.”
Biden kept $300 billion of Trump’s 2018 tariffs against China and increased them on certain Chinese clean-tech industries in May. Trump has promised to impose 60 percent tariffs on goods from the country.
Economists say Trump’s plans paint a mixed economic outlook.
“One path sees tax cuts and deregulation unleashing the animal spirits, thereby boosting productivity growth and GDP outcomes while keeping inflation well contained,” said Michael Feroli, chief US economist at JPMorgan. “The other path predicts that political uncertainty hinders growth, while trade and immigration restrictions impart a stagnant inflationary bias.”
The US stock market has soared to new highs following Trump’s election victory this month, in which Republicans also won control of Congress.
But many analysts believe it will be difficult for him to dismantle the IRA even with control of Congress. Republican districts have received more than 80 percent of manufacturing investment since the law was passed, the FT found, and some Republican lawmakers have advocated a full repeal as the “worst-case scenario.”
“I think there’s a risk, but I want to think logically,” said Gary Park, chief executive of Absolics, which received a preliminary $75 million Chips Act award for its Georgia plant. “The semiconductor is [a] key industry for the future and there is no reason to send the industry back to Korea.”
Some cleantech manufacturers are delaying projects until there is more clarity. The FT has tracked that at least half a dozen projects have been slowed due to political uncertainty.
“It’s too much of an unknown. It’s hard to move,” said Chao Yan, founder of Princeton battery component maker NuEnergy. “Tariff increases will increase inflation on everything we buy from outside.”