President-elect Donald Trump’s plans for higher tariffs, lower taxes and more curbs on immigration are expected to reignite inflation but economic forecasters are divided over whether they’ll weaken or boost the U.S. economy in the near term.
Eventually, the higher levies on imports and immigration constraints are likely to more than offset the benefits of lower taxes on consumer and business spending, weakening growth overall but stopping short of triggering a recession, economists say.
“We think a period of slower GDP growth in 2025 beckons, rather than a slump,” Samuel Tombs, chief U.S. economist of Pantheon Macroeconomics, wrote in a note to clients.
Trump, a Republican and former president, won election Wednesday over Democratic Vice President Kamala Harris. Senate control flipped to Republicans, while as of Wednesday afternoon the House remained up for grabs.
Here’s a rundown of the potential effects on the economy:
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Tariffs
Trump has threatened to slap tariffs of 10% or 20% on all imports and up to 60% on Chinese shipments.
During his first term, Trump’s tariffs socked a tenth of U.S. imports with the fees, largely steel, washing machines and solar panels. His current proposal is more wide-ranging and would affect more consumer goods, Nomura wrote in a research note Wednesday.
American retailers and manufacturers typically have passed along part of their higher costs to consumers through increased prices while absorbing some of them in smaller profit margins.
As a result, Nomura raised its forecast for inflation to 3.1% in 2025 and 2.7% in 2026 from its previous estimates of 2.3% and 2.1%, respectively. The Fed’s preferred inflation measure was at 2.7% in September, falling from nearly 6% in 2022.
The new fees would reduce Americans’ purchasing power by $78 billion, the National Retail Federation estimates, causing households to pull back spending and hurting economic growth. The Peterson Institute for International Economics has estimated the levies would cost each U.S. household an average $2,600 a year.
Tariffs also would likely prompt affected countries to retaliate with their own levies against the U.S., battering American exports and further damping the economy, Oxford Economics wrote in a research note.
But Ryan Sweet, Oxford’s chief U.S. economist, believes Trump likely will scale back his trade proposals and impose more targeted tariffs on China, Mexico, Canada and the European Union. He also figures the fees will take time to phase in, increasing inflation by a more modest three-tenths of a percentage point in 2027.
Taxes
Trump and a Republican Congress likely would extend the 2017 Tax Cut and Jobs Act for both households and businesses. For individuals, that probably would mean lower tax rates, a larger standard deduction and an expanded child tax credit, Sweet said.
Businesses, meanwhile, would be able to continue to write off capital investments and research and development expenses more rapidly, Sweet wrote. But Nomura is skeptical Republicans will support other Trump proposals such as further lowering the corporate tax rate or exempting tips or Social Security from income taxes.
Trump likely also would reduce spending on social services, Sweet said, imposing stricter requirements to beneficiaries of Medicaid and the Supplemental Nutrition Assistance Program, also known as food stamps.
Immigration
Trump has vowed to reinstate programs that forced asylum seekers to wait in Mexico while their cases are resolved and to deport millions of immigrants who lack permanent legal status. His plan would go well beyond outgoing President Joe Biden’s executive actions that beefed up enforcement in June.
Sweet estimates net migration to the U.S. would fall to about 800,000 a year from 1.1 million. Immigration has accounted for most of a rise in the labor force that has eased pandemic-related labor shortages and wage growth, helping push down inflation. Sharply constricting immigration likely would push up inflation again and crimp economic growth by curtailing hiring and the additional spending of foreign visitors, Sweet and Nomura say.
What is the current economic outlook?
So what’s the bottom line for the U.S. economy?
Nomura says any benefits to consumer spending from lower taxes will be limited, in part because many of the cuts likely will go to higher-income households that tend to save, rather than spend, their additional income. And the gains likely would be outweighed by the hit to growth from higher tariffs and reduced immigration.
Higher inflation also would mean the Federal Reserve will lower rates just once by a quarter point next year, Nomura said, instead of the percentage point drop Fed officials forecast in September.
As a result, both Nomura and Pantheon reckon the economy will grow more slowly next year.
But Sweet says the economic boost from lower taxes should lift growth by three-tenths of a percentage point in 2026 before the stricter trade and immigration policies reduce growth by six tenths of a percentage point in 2028.
And he figures the Fed will continue to lower rates aggressively until higher tariffs push up inflation 2026.
Mark Zandi, chief economist of Moody’s Analytics, said, “While President Trump’s policies will diminish the economy, it will not undermine it, as the President will likely moderate his policies and even pivot if it looks like they are doing significant economic damage.”
