In a speech over the weekend, Donald Trump appears to concede that restricting global trade or immigration would result in higher prices in the US. But, he argues that the undesirability of higher prices would be more than offset by the benefits from an increase in jobs to residents. While that sounds like a valid choice to consider, it may not be right in a broader, macroeconomic context. Specifically, if the higher price inflation leads to tighter Fed policy that slows economic growth, then employment may be lower than otherwise rather than higher.
The underlying idea is that the dis-inflationary impact of imports or immigration can be viewed as an exogenous factor that lowers the trade-off between unemployment and inflation: inflation is lower for any level of the unemployment rate than it would be without this impact. In other words, the Phillips Curve shifts to the left. From a policy perspective, this means that the Fed could be comfortable letting the Unemployment Rate fall to, say, 4.0% rather than 5.0% before being concerned about a pickup in inflation. So, the impact of imports or immigration could be to boost job creation by holding back the Fed. And, conversely, restricting imports or immigration could destroy jobs by pushing the Fed to tighten.
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