Voters’ frustration with their economic lives played a key role in Donald Trump’s second term. It will now be up to Trump to try to reverse that trajectory and deliver on his broad promises of economic recovery.
Trump will inherit an economy that is already on relatively solid footing. Inflation slowed and wages began to catch up with high prices. Although companies are not hiring at the same rate as they emerged from the pandemic, the job market remains strong by historical standards, with low unemployment and about one job opening for every job seeker.
Despite signs of strength in the economy, the cost of living and general dissatisfaction with the economy were repeatedly cited as top concerns by voters heading into the election. Housing costs have been a major pressure point on household budgets after rents have risen by an average of 24% over the past four years, and with mortgage rates hovering above 6%, many households have been unable to afford a home. Food was another rising cost with an average cost food products increased by 22% over the past four years and food banks to see record numbers of people seeking help.
Trump has offered a wide range of proposals that he says will improve America’s finances, many of which would require action from Congress, where Republicans control the Senate and control the House of Representatives. Trump’s economic plans include deporting millions of immigrants, imposing broad tariffs on all goods coming into the United States, encouraging more oil production, cutting corporate taxes and eliminating taxes on Social Security income and tips.
Here are ways some of these proposals could affect the economy:
Tariffs
While inflation is a key issue for voters, one of Trump’s central campaign promises — to impose tariffs on all goods imported into the U.S. — is likely to raise prices and cost workers their jobs, according to economists, business groups and even some Trump allies. Trump denied these claims.
Trump said during his speech at the Economic Club of Chicago: “To me, the most beautiful word in the dictionary is “tariff.” “This is my favorite word. For this, a public relations company is needed.”
Under Trump’s proposal, the US would impose at least a 10% tariff on all foreign goods entering the US, and a 60% tariff on Chinese imports. Tariffs are paid to the federal government by the company that imports those goods, such as a retailer or manufacturer. Those companies can either pass the costs on to consumers by raising prices, or they can absorb the costs and make less profit.
If past rates are any indication, consumers will likely see higher prices. Not only do companies often go through hikes, non-tariff competitors also often raise prices. Companies including AutoZone and Black & Decker have already warned investors that they will raise prices if Trump goes through with the tariff proposal. Trump’s tariffs in 2018 and 2019 have raised prices on a number of goods, including washing machines, bags and tires. to learn By the National Bureau of Economic Research.
Consumers and retailers in the shoe industry were hit by Trump’s 7.5% tariff on hundreds of millions of shoes imported from China in 2019. Matt Priest, president of the Footwear Distributors and Retailers of America, said that while some retailers have absorbed the cost of the tariffs and hit their bottom line, others have passed the cost on to consumers by raising the prices of their shoes.
“We can confirm that if you charge us more to bring a product, it will cost the consumer more to buy that product,” Priest said. “It’s kind of Econ 101.”
Trump has argued that imposing tariffs on goods from China would encourage companies to move factories to the US, creating jobs and boosting sales for US manufacturers.
But multiple investigations, including Trump’s background rates and previous rounds A calculation of tariffs under different administrations found that raising tariffs did not cause a significant number of companies to move to the United States or create jobs for domestic manufacturers. Conversely, Trump’s steel and aluminum tariffs in 2018 led to lower manufacturing employment due to higher costs for companies that use steel and aluminum in their products. to learn by the Federal Reserve Board.
Priest said Trump’s 2019 tariffs on shoemakers have not resulted in any companies moving production to the U.S. due to high labor costs and a lack of supply chains and materials. He said he hasn’t seen another charge from Trump that changes that score.
“Higher labor costs, lack of worker interest in shoe manufacturing, lack of materials and material suppliers here in the U.S.,” said Priest, who moved shoe manufacturing to the United States. It’s just not competitive on price.”
Inflation
Trump has vowed to “beat” inflation, even though prices have already been rising returned After peaking in 2022, to the historical norm of 2% to 3% over the past few months. But prices of many essential products still remain well above pre-pandemic levels.
To lower housing costs, Trump has said he would allow homes to be built on federally protected land, which could help increase the supply of homes in places like Nevada and Arizona. He also said he would cut regulations for developers, although many regulations for housing are set at the state and local level. He said he would promote homeownership through tax breaks, but his campaign was not specific about what those incentives would be.
Trump has said he will reduce overall spending by cutting energy prices by 50% in his first year in office, according to industry experts. difficult. To that end, Trump has said he will allow oil companies to drill more on federal lands in Alaska and remove barriers to speed up production.
Oil producers are already pumping at record levels in the U.S. and are limited by how much they can drill by labor and infrastructure constraints. Companies are also wary of flooding the market with too much oil because that would drive down the price and cause them to potentially lose money on every barrel they pump. Oil prices are also determined by the global market, where other countries such as Saudi Arabia or Russia may cut production to raise prices and maintain profitability.
Immigration
Trump said he would carry out the “largest deportation in the history of our country” of illegal immigrants, which he claimed would help the economy by freeing up housing and jobs for US citizens.
Business groups have warned that deporting millions of immigrants could create labor shortages that would ultimately drive up prices, particularly in areas such as food production and housing, where immigrants make up a significant portion of the workforce.
One in the already facing construction industry deficiency hundreds of thousands of workers estimate there are about 1.5 million undocumented workers, about 13% of the total workforce. data This was reported by the Pew Research Center to NBC News.
Jim Tobin, CEO of the National Association of Home Builders, told NBC News last month that mass deportations of immigrants “will hurt the construction industry and our workforce and exacerbate our housing affordability problems.”
NABH and other industry groups say the main reason housing costs have risen over the past few years is a mismatch between them. supply and demand After the Great Recession, housing construction collapsed. As homebuilders ramped up construction of single-family homes and apartment buildings in recent years, they have faced higher labor and material costs, driving up home prices.
On economics, moment analysis Researchers at the University of New Hampshire found that mass deportation of immigrants could reduce the productivity of the US economy by 6.2% as measured by gross domestic product, or about $1.7 trillion.
Taxes
Trump has proposed a series of tax cuts, including the complete elimination of the federal income tax. But given that Congress would have to pass legislation to change the tax system, the likelihood of these plans going into effect is mixed. While some plans are tied up in details and there are many variables in how his proposals will be implemented, economists at the University of Pennsylvania estimate that Trump’s tax and spending plans will increase the deficit by $4.1 trillion. the wider economy.
One of the most likely tax proposals to become a reality would be the expiration of tax cuts enacted during the first Trump administration in 2025. These cuts reduced the corporate tax rate from 35% to 21%, reducing personal income. tax rates and the standard deduction were increased.
Trump proposed to further reduce the corporate tax rate – 15%.
One of Trump’s more consistent campaign promises is to eliminate taxes on tips, which 2.5% employees who receive tips as part of their income. But if more industries move to a devolved system where workers are paid minimum wage and expected to receive most of their income tax-free from tips, it could lead to major disruptions in how workers are paid. Even white-collar industries can adopt a system where a portion of employee income is classified as tips.
This could create havoc for workers and consumers and reduce the amount of income taxes the federal government collects.
Trump also said that Social Security income for seniors should be tax-free. About 40% of Social Security recipients pay federal income taxes because they have other sources of income that raise their income taxes above a certain threshold. according to To the Social Security Administration.
Eliminating the Social Security tax would mean a loss of tax revenue for the federal government, which would either increase the deficit or be offset by cuts.