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Donald Trump officially returns to the White House on Monday. Politics aside, his second administration is certain to reshape the economy.
Trump 2.0 inherits a labor market and economy that have remained more robust than anyone predicted a year ago, as well as still-sticky inflation, and a mixed outlook for Fed policy.
Here’s what to know about some of the major policy moves Trump plans to make, and how they may affect the economy:
Inflation: Some economists — like the chief economist of the IMF — anticipate a rebound in inflation due to a mix of tariffs, tax cuts, and curtailed immigration. Others, meanwhile, point to deregulation and the extension of expiring tax cuts as reason to believe inflation will continue to slow.
Tariffs: During Trump’s first term, he implemented tariffs on $380 billion worth of product from US trade partners, though the impact was relatively muted. For his second term, Trump’s raised the possibility of higher across-the-board tariffs, though part of the strategy is likely gamesmanship and negotiation.
Among the proposals Trump has floated so far:
- Gradually raising tariffs 2% to 5% per month
- Widespread 10% to 20% tariffs on all US imports
- A 60% levy on goods coming from China
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Again, it’s hard to know before Inauguration Day which of these will materialize. US companies that are impacted by tariffs could be forced to either eat those costs or, more likely, pass them to consumers. A survey of economists by Bankrate showed every single respondent warned tariffs could lead to higher prices
Taxes: Trump wants to renew roughly $4 trillion in expiring tax cuts once he returns to office.
According to an analysis from the US Treasury released Jan. 10, the move could give the top 0.1% earners a tax cut of $314,000, while costing roughly $4.2 trillion between 2026 and 2035. If the cuts were only extended to households earning $400,000 or less annually, it would cost $1.8 trillion. Trump has also proposed removing tips, Social Security, and overtime wages from income taxes
Immigration: The president-elect has promised “massive” deportations, but that will be easier said than done, which suggests the economic implications aren’t likely to be as significant as some analysts anticipate. Immigrants—both documented and undocumented—account for a large portion of the labor market, and removing that many workers from an economy is a logistical nightmare and could weigh on productivity.
Special thanks to our friend Phil Rosen for writing today’s guest post. Phil’s newsletter Opening Bell Daily is a great way to start your day, and subscribing is completely free. Give it a try here today.