How Donald Trump’s victory in 2024 will affect the economy

President-elect Donald Trump plans for higher tariffs, lower taxes and more restrictions on immigration they are expected to resume inflation but economic forecasters are divided on whether they will weaken or stimulate the US economy in the near future.

In the end, higher import tariffs and immigration restrictions are likely to more than offset the benefits of lower taxes on consumer and business spending, weakening economic growth overall but failing to spark economic growth. recessionsay economists.

“We believe we are in for a period of slower GDP growth rather than a recession in 2025,” Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics, wrote in a note to clients.

Trump, a Republican and former president, won the election on Wednesday over Democratic Vice President Kamala Harris. Control of the Senate shifted to Republicans, while the House remained open as of Wednesday afternoon.

Here’s a summary of the potential economic impacts:

Tariffs

Trump has threatened to impose tariffs of 10% or 20% on all imports and up to 60% on Chinese supplies.

During his first term, Trump’s tariffs affected a tenth of US imports, mostly steel, washing machines and solar panels. Its current proposal is larger and would affect more consumer products, Nomura wrote in a research note on Wednesday.

U.S. retailers and manufacturers typically pass on some of their higher costs to consumers through higher prices, while absorbing some of them at lower profits.

As a result, Nomura raised its inflation forecast 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 target was 2.7% in September, down from nearly 6% in 2022.

The National Retail Federation estimates the new fees will reduce Americans’ purchasing power by $78 billion, forcing households to cut spending and hurting economic growth. The Peterson Institute for International Economics estimates that these fees will cost each American household an average of $2,600 per year.

The tariffs would also likely prompt affected countries to retaliate by imposing tariffs on the United States, which would hurt American exports and further weaken the economy, Oxford Economics wrote in a research note.

But Ryan Sweet, chief US economist at Oxford, said Trump is likely to scale back his trade proposals and impose more targeted tariffs on China, Mexico, Canada and the European Union. He also believes the levies will take time to be phased in, leading to inflation rising by a more modest three-tenths of a percentage point in 2027.

Taxes

Trump and the Republican Congress are likely to extend the 2017 Tax Cuts and Jobs Act for both households and businesses. For individuals, that would likely mean lower tax rates, a larger standard deduction and an expanded child tax credit, Sweet said.

In the meantime, businesses will be able to continue to write off capital expenditures and R&D expenses more quickly, Sweet wrote. But Nomura is skeptical that Republicans will support other Trump proposals, such as further cutting the corporate tax rate or exempting tips or Social Security from income taxes.

Trump will also likely cut spending on social services by imposing stricter eligibility requirements for Medicaid and Supplemental Nutrition Assistance Program beneficiaries, also known as food stamps, Sweet said.

Immigration

Trump has vowed to restore programs that forced asylum seekers to wait in Mexico while their cases were resolved and to deport millions of immigrants without permanent legal status. His plan goes well beyond outgoing President Joe Biden’s executive action to tighten enforcement in June.

Sweet estimates net migration to the U.S. will fall to about 800,000 a year from 1.1 million. Immigration has been a major driver of labor force growth, easing pandemic-related labor shortages and rising wages, helping to reduce inflation. Severe restrictions on immigration would likely again fuel inflation and limit economic growth by reducing hiring and the added costs of foreign visitors, Sweet and Nomura said.

What are the current economic prospects?

So what is the bottom line for the US economy?

Nomura says any benefits to consumer spending from tax cuts will be limited, in part because many of the cutsWith most likely to go to higher-income households who tend to save rather than spend their extra income. And the benefits are likely to be outweighed by the hit to economic growth from higher tariffs and reduced immigration.

Higher inflation will also mean the Federal Reserve will cut rates only once by a quarter point next year, Nomura said, instead of the percentage point cut Fed officials projected in September.

As a result, both Nomura and Pantheon believe the economy will grow more slowly next year.

But Sweet says the economic boost from tax cuts should lift growth by three-tenths of a percentage point in 2026 before stricter trade and immigration policies lower growth by six-tenths of a percentage point in 2028.

And he believes the Fed will continue to cut rates aggressively until higher tariffs cause inflation to rise in 2026.

Mark Zandi, chief economist at Moody’s Analytics, said: “While President Trump’s policies will shrink the economy, they will not undermine it, as the president is likely to ease his policies and even reverse them if they are found to be causing significant economic harm.”