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Economics

Three reasons why Donald Trump might outperform the polls

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THIS IS AMERICA’S closest presidential contest since at least 2000. With hours to go before the polls close, forecasting models, including The Economist’s, are showing a nearly 50/50 race, because swing-state polls are roughly tied. Thanks to one last batch on the campaign’s final day, our model favours Kamala Harris over Donald Trump by a very narrow margin, giving her a 56% chance of victory. Others show an even tighter race: Split Ticket puts Ms Harris on 53%, and both FiveThirtyEight and Silver Bulletin have her at 50%.

In states where our model gives the leader at least a 90% chance to win, Ms Harris has 226 electoral votes to Mr Trump’s 219. In the remaining seven states, the two are within three percentage points of each other in all state polling averages. Ms Harris is clinging to one-point leads in Michigan and Wisconsin; Mr Trump has similarly small edges in North Carolina and Georgia, and a slightly larger one in Arizona. Nevada and Pennsylvania are a dead heat.

The vice-president’s easiest path to victory is winning the Rust Belt states of Michigan, Pennsylvania and Wisconsin—just as the former president’s task is to break through this northern “blue wall”, as he did in 2016. If Ms Harris loses even one of these states, she would have to pick off a Sun Belt state where Mr Trump is currently in the lead.

And yet the race will probably not wind up as close as polls suggest. Since 1976, state polling averages have missed the final margin between the two nominees by an average of four percentage points. Moreover, when surveys underestimate a candidate in one part of the country, they generally err in the same way in other parts, too. At least a modest nationwide error is likely. Such an error, given how close the polls are, would probably deliver most or all of the swing states, and a decisive electoral-college victory, to whichever candidate benefits.

The chances of a big error may be even larger than usual this year because of evidence that at least some pollsters have been “herding”. This means that, when they get an outlier result, they decline to publish it or adjust their weighting to bring it closer to consensus. To be sure, America’s two most revered pollsters have released some stunning results this year. The New York Times and Siena College put Mr Trump up 13 points in Florida. On November 2nd, Ann Selzer gave Ms Harris a three-point lead in Iowa, which Mr Trump won by eight points in 2020. But the share of polls that put the candidates within a point of each other in the swing states is greater than random chance alone can explain.

Betting markets suggest that Mr Trump is likelier to outperform than is Ms Harris. On real-money exchanges with unlimited stakes, he is currently a 56-62% favourite. Some Democratic pundits dismiss this as “manipulation” by Trump supporters. Such charges are hard to stand up. Mr Trump is favoured on all major markets. Unless Elon Musk himself is propping him up on most of these sites, the prices simply reflect the (dollar-weighted) wisdom of crowds.

Three Trump cards

More convincing reasons can explain the divergence between models and markets. The first is that forecasts that rely mainly on state polling averages, rather than national ones, may be underestimating the “stickiness” of Mr Trump’s advantage in the electoral college. In 2016 and 2020, Democrats fared far better in the national popular vote than in Wisconsin, the state that delivered the decisive 270th vote in both elections. Currently Ms Harris clings to a tiny one-point edge in national polls.

Most of Mr Trump’s gains since 2020 have come from non-white and Hispanic voters, who are concentrated in big, uncompetitive states. State-level surveys support the idea that Republicans will “waste” many more votes this year: Mr Trump has inefficiently narrowed his deficit in New York and expanded his leads in Florida and Texas. None of that will decide the election. But if Ms Harris really does prevail by a single point in the popular vote, Mr Trump would need to retain only a fraction of his four-point electoral-college advantage of 2020 to return to the White House.

The second argument in Mr Trump’s favour lies in early-voting data. In 2020 Mr Trump denounced early and postal voting, allowing Democrats to bank huge leads before election day. This year he has sent mixed messages. As a result, the big gap in early voting that Democrats enjoyed four years ago has shrunk and, in some states, even become a deficit. Only when early-voting numbers started to come in did market prices begin to diverge from polling averages in 2024.

The third and final pro-Trump theory is that he is more likely than Ms Harris to outperform the polls because he did so in each of his past two campaigns. There are good reasons to expect this trend to continue. His supporters tend to distrust the media and universities, which account for most non-partisan public polling. This may make them less likely to participate in surveys. Pollsters use weighting methods to try to overcome this bias. But such efforts fail if Trump voters are less willing to share their views than are others with the same demographic profile.

Three Kam-terarguments

Or is it Ms Harris whom models are underestimating? Democrats offer three strong arguments for this. The first is an alternative explanation for previous polling errors that favoured Mr Trump. In 2016 many pollsters failed to weight their surveys by educational attainment. Because voters who graduated from college are very likely to talk to pollsters, this caused surveys to under-sample Mr Trump’s working-class supporters. By 2020 education weighting was de rigueur, but the incumbent beat his polls again, by an even greater margin.

Trump fans may believe that their man’s backers simply cannot be polled. But the 2020 election took place amid a once-in-a-century pandemic, in which Democrats were far more likely to stay at home, and so had time to participate in surveys, than Republicans were. Polls of the Trump-Biden race taken before covid began came much closer to the final result than subsequent ones did. No such imbalance in free time exists this year.

Most pollsters have also adopted “recall-vote weighting”, adjusting their samples so that the share of people who say that they supported Mr Biden and Mr Trump in 2020 matches the actual result. More respondents generally claim they voted for the winner of the past election than the number who actually did. As a result, recall weighting tends to increase vote shares for the party whose candidate lost last time: in this case, the Republicans. This method makes polls less accurate, but many firms lowballed Mr Trump for two straight cycles. Abundant recall weighting this time may have overshot the mark, which would raise the probability of a polling error in Ms Harris’s favour.

The second argument is that Ms Harris may have an advantage in the turnout battle. During Barack Obama’s two terms, Democrats depended on less reliable voters, and got walloped in midterm elections. But the Trump-era realignment, which has pushed college-educated voters towards Democrats and working-class ones towards Republicans, has reversed this dynamic. Since 2017 Democrats have consistently outperformed in lower-turnout contests. The “top-two” primary in Washington state, a reliable predictor of general elections, suggests a more Democratic national environment than current polls do, for instance.

The third argument is that Mr Trump’s tactics and strategy seem misaligned. He has given himself a tough task by focusing his campaign on appealing to groups with a low propensity to vote, such as young men and non-whites without college degrees. A candidate who is counting on such supporters should, as Mr Obama did, invest in a robust “ground game” to maximise turnout among expected backers.

Yet Mr Trump has outsourced most of this to an untested outfit funded by Mr Musk, called the America PAC. It is true that Hillary Clinton also enjoyed an advantage in field offices and among canvassers in 2016. But Mr Trump benefited from far more support from college-educated white voters that year than he is expected to in 2024.

The arguments are persuasive on both sides. So models are probably right to land around 50/50. But that is assuming the candidate who wins enough states to secure 270 electoral votes will also become president. And, if history is any guide, Mr Trump is unlikely to accept defeat. With six of the nine Supreme Court justices appointed by Republicans, a repeat of 2000—when the court handed the presidency to George W. Bush in an election decided by 537 votes—gives Mr Trump one more potential path back to the White House.

Economics

Trump tariffs’ effect on consumer prices debated by economists

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The U.S. government is set to increase tariff rates on several categories of imported products. Some economists tracking these trade proposals say the higher tariff rates could lead to higher consumer prices.

One model constructed by the Federal Reserve Bank of Boston suggests that in an “extreme” scenario, heightened taxes on U.S. imports could result in a 1.4 percentage point to 2.2 percentage point increase to core inflation. This scenario assumes 60% tariff rates on Chinese imports and 10% tariff rates on imports from all other countries.

The researchers note that many other tariff proposals have surfaced since they published their findings in February 2025. 

Price increases could come across many categories, including new housing and automobiles, alongside consumer services such as nursing, public transportation and finance. 

“People might think, ‘Oh, tariffs can only affect the goods that I buy. It can’t affect the services,'” said Hillary Stein, an economist at the Boston Fed. “Those hospitals are buying inputs that might be, for example, … medical equipment that comes from abroad.” 

White House economists say tariffs will not meaningfully contribute to inflation. In a statement to CNBC, Stephen Miran, chair of the Council of Economic Advisers, said that “as the world’s largest source of consumer demand, the U.S. holds all the leverage, which means foreign suppliers will have to eat the economic burden or ‘incidence’ of the tariffs.” 

Assessing the impact of the administration’s full economic agenda has been a challenge for central bank leaders. The Federal Open Market Committee decided to leave its target for the federal funds rate unchanged at the meeting in March. 

The Fed targets its overnight borrowing rate at between 4.25% and 4.5%, with the effective federal funds rate at 4.33% on March 31, according to the New York Fed. The core personal consumption expenditures price index inflation rate rose to 2.8% in February, according to the Commerce Department. Forecasts of U.S. gross domestic product suggest that the economy will continue to grow at a 1.7% rate in 2025, albeit at a slower pace than what was forecast in January.  

Consumers in the U.S. and businesses around the world are bracing for impact. 
 
“There is a reason why companies went outside of the U.S.,” said Gregor Hirt, chief investment officer at Allianz Global Investors. “Most of the time it was because it was cheaper and more productive.” 

Watch the video above to learn how much inflation tariffs may cause.

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Economics

Trump’s tariff gambit will raise the stakes for an economy already looking fragile

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U.S. President Donald Trump speaks alongside entertainer Kid Rock before signing an executive order in the Oval Office of the White House on March 31, 2025 in Washington, DC. 

Andrew Harnik | Getty Images

President Donald Trump is set Wednesday to begin the biggest gamble of his nascent second term, wagering that broad-based tariffs on imports will jumpstart a new era for the U.S. economy.

The stakes couldn’t be higher.

As the president prepares his “liberation day” announcement, household sentiment is at multi-year lows. Consumers worry that the duties will spark another round of painful inflation, and investors are fretting that higher prices will mean lower profits and a tougher slog for the battered stock market.

What Trump is promising is a new economy not dependent on deficit spending, where Canada, Mexico, China and Europe no longer take advantage of the U.S. consumer’s desire for ever-cheaper products.

The big problem right now is no one outside the administration knows quite how those goals will be achieved, and what will be the price to pay.

“People always want everything to be done immediately and have to know exactly what’s going on,” said Joseph LaVorgna, who served as a senior economic advisor during Trump’s first term in office. “Negotiations themselves don’t work that way. Good things take time.”

For his part, LaVorgna, who is now chief economist at SMBC Nikko Securities, is optimistic Trump can pull it off, but understands why markets are rattled by the uncertainty of it all.

“This is a negotiation, and it needs to be judged in the fullness of time,” he said. “Eventually we’re going to get some details and some clarity, and to me, everything will fit together. But right now, we’re at that point where it’s just too soon to know exactly what the implementation is likely to look like.”

Here’s what we do know: The White House intends to implement “reciprocal” tariffs against its trading partners. In other words, the U.S. is going to match what other countries charge to import American goods into their countries. Most recently, a figure of 20% blanket tariffs has been bandied around, though LaVorgna said he expects the number to be around 10%, but something like 60% for China.

What is likely to emerge, though, will be far more nuanced as Trump seeks to reduce a record $131.4 billion U.S. trade deficit. Trump professes his ability to make deals, and the saber-rattling of draconian levies on other countries is all part of the strategy to get the best arrangement possible where more goods are manufactured domestically, boosting American jobs and providing a fairer landscape for trade.

The consequences, though, could be rough in the near term.

Potential inflation impact

On their surface, tariffs are a tax on imports and, theoretically, are inflationary. In practice, though, it doesn’t always work that way.

During his first term, Trump imposed heavy tariffs with nary a sign of longer-term inflation outside of isolated price increases. That’s how Federal Reserve economists generally view tariffs — a one-time “transitory” blip but rarely a generator of fundamental inflation.

This time, though, could be different as Trump attempts something on a scale not seen since the disastrous Smoot-Hawley tariffs in 1930 that kicked off a global trade war and would be the worst-case scenario of the president’s ambitions.

“This could be a major rewiring of the domestic economy and of the global economy, a la Thatcher, a la Reagan, where you get a more enabled private sector, streamlined government, a fair trading system,” Mohamed El-Erian, the Allianz chief economic advisor, said Tuesday on CNBC. “Alternatively, if we get tit-for-tat tariffs, we slip into stagflation, and that stagflation becomes well anchored, and that becomes problematic.”

Tariffs could be a major rewiring of the domestic and global economy, says Mohamed El-Erian

The U.S. economy already is showing signs of a stagflationary impulse, perhaps not along the lines of the 1970s and early ’80s but nevertheless one where growth is slowing and inflation is proving stickier than expected.

Goldman Sachs has lowered its projection for economic growth this year to barely positive. The firm is citing the “the sharp recent deterioration in household and business confidence” and second-order impacts of tariffs as administration officials are willing to trade lower growth in the near term for their longer-term trade goals.

Federal Reserve officials last month indicated an expectation of 1.7% gross domestic product growth this year; using the same metric, Goldman projects GDP to rise at just a 1% rate.

In addition, Goldman raised its recession risk to 35% this year, though it sees growth holding positive in the most-likely scenario.

Broader economic questions

However, Luke Tilley, chief economist at Wilmington Trust, thinks the recession risk is even higher at 40%, and not just because of tariff impacts.

“We were already on the pessimistic side of the spectrum,” he said. “A lot of that is coming from the fact that we didn’t think the consumer was strong enough heading into the year, and we see growth slowing because of the tariffs.”

Tilley also sees the labor market weakening as companies hold off on hiring as well as other decisions such as capital expenditure-type investments in their businesses.

That view on business hesitation was backed up Tuesday in an Institute for Supply Management survey in which respondents cited the uncertain climate as an obstacle to growth.

“Customers are pausing on new orders as a result of uncertainty regarding tariffs,” said a manager in the transportation equipment industry. “There is no clear direction from the administration on how they will be implemented, so it’s harder to project how they will affect business.”

While Tilley thinks the concern over tariffs causing long-term inflation is misplaced — Smoot-Hawley, for instance, actually ended up being deflationary — he does see them as a danger to an already-fragile consumer and economy as they could tend to weaken activity further.

“We think of the tariffs as just being such a weight on growth. It would drive up prices in the initial couple [inflation] readings, but it would create so much economic weakness that they would end up being net deflationary,” he said. “They’re a tax hike, they’re contractionary, they’re going to weigh on the economy.”

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Economics

Euro zone inflation, March 2025

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A man pushes his shopping cart filled with food shopping and walks in front of an aisle of canned vegetables with “Down price” labels in an Auchan supermarket in Guilherand Granges, France, March 8, 2025.

Nicolas Guyonnet | Afp | Getty Images

Annual Euro zone inflation dipped as expected to 2.2% in March, according to flash data from statistics agency Eurostat published Tuesday.

The Tuesday print sits just below the 2.3% final reading of February.

So called core-inflation, which excludes more volatile food, energy, alcohol and tobacco prices, edged lower to 2.4% in March from 2.6% in February. The closely watched services inflation print, which had long been sticky around the 4% mark, also fell to 3.4% in March from 3.7% in the preceding month.

Recent preliminary data had showed that March inflation came in lower than forecast in several major euro zone economies. Last month’s inflation hit 2.3% in Germany and fell to 2.2% in Spain, while staying unchanged at 0.9% in France.

The figures, which are harmonized across the euro area for comparability, boosted expectations for a further 25-basis-point interest rate cut from the European Central Bank during its upcoming meeting on April 17. Markets were pricing in an around 76% chance of such a reduction ahead of the release of the euro zone inflation data on Tuesday, according to LSEG data.

The European Union is set to be slapped with tariffs due in effect later this week from the U.S. administration of Donald Trump — including a 25% levy on imported cars.

While the exact impact of the tariffs and retaliatory measures remains uncertain, many economists have warned for months that their effect could be inflationary.

This is a breaking news story, please check back for updates.

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