With Donald Trump set to become president again, his proposals for increased tariffs, reduced taxes, and stricter immigration policies are anticipated to drive inflation higher. However, economists are split on whether these policies will ultimately harm or help the U.S. economy in the short term.

Experts suggest that the adverse effects of the increased tariffs and immigration restrictions might outweigh the positive impacts of tax cuts on consumer and business expenditure. This could lead to slower economic growth without necessarily plunging the economy into a recession, according to economists.

“We predict a slowdown in GDP growth by 2025, rather than a recession,” noted Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics, in a communication with clients.

Trump, a Republican and former president, triumphed in the recent election over Democratic Vice President Kamala Harris. Republicans also regained control of the Senate, while the House of Representatives remained uncertain as of Wednesday afternoon.

Here’s a summary of the potentially significant economic impacts:

Tariffs

Trump has indicated intentions to impose tariff rates of 10% to 20% on all imports and as high as 60% on goods from China.

During his previous administration, Trump’s tariffs impacted about 10% of U.S. imports, mainly targeting items like steel, washing machines, and solar panels. His current proposals are broader and would encompass a wide variety of consumer products, according to recent analysis by Nomura.

Typically, American retailers and manufacturers pass some of their increased costs onto consumers through higher prices while also accepting smaller profit margins.

Consequently, Nomura has revised its inflation forecasts to predict rates of 3.1% in 2025 and 2.7% in 2026, up from earlier estimates of 2.3% and 2.1%. The Federal Reserve’s preferred inflation measure was reported at 2.7% in September, down from nearly 6% in 2022.

The anticipated tariffs could cut American consumers’ purchasing power by approximately $78 billion, as estimated by the National Retail Federation, leading households to reduce their spending and consequently hindering economic growth. According to the Peterson Institute for International Economics, such tariffs could cost U.S. households around $2,600 annually.

Moreover, these tariffs may provoke retaliatory measures from other countries, imposing fees on U.S. exports and further depressing the economy, as discussed in a recent report by Oxford Economics.

Still, Ryan Sweet, chief U.S. economist at Oxford, opines that Trump might temper his trade strategies, targeting tariffs specifically at China, Mexico, Canada, and the EU. Sweet also expects the tariff implementation to be gradual, projecting a modest rise in inflation by three-tenths of a percentage point in 2027.

Taxes

With Trump re-elected and likely supported by a Republican Congress, extensions to the 2017 Tax Cut and Jobs Act for households and businesses seem probable. This may result in reduced tax rates, an increased standard deduction, and a broader child tax credit for individuals, as noted by Sweet.

Businesses could continue benefiting from faster deductions for capital investments and R&D expenses, according to Sweet. However, Nomura cast doubt on whether Republicans will endorse some of Trump’s other financial plans, such as lowering the corporate tax rate or exempting certain income types like tips and Social Security from income taxation.

Furthermore, Trump is likely to curtail social services funding, Sweet predicts, adding stricter eligibility criteria for Medicaid and the Supplemental Nutrition Assistance Program (food stamps).

Immigration

Trump has pledged to bring back policies that require asylum seekers to stay in Mexico while their applications are processed and to deport millions of unauthorized immigrants. His agenda appears more aggressive than outgoing President Biden’s recent enhancements to immigration enforcement.

Sweet anticipates that net migration to the U.S. might drop from 1.1 million to about 800,000 annually. Immigration has significantly contributed to the increase in the labor force, alleviating labor shortages and wage escalations which helped control inflation. A drastic cut to immigration could lead to a resurgence in inflation and restrict economic growth by limiting hiring and reducing spending by foreign tourists, according to analyses by Sweet and Nomura.

Current Economic Outlook

What does this mean for the U.S. economy going forward?

Nomura suggests that any uplift in consumer spending from tax reductions will be constrained, partly because many of the benefits will likely go to wealthier households that traditionally save rather than spend their extra income. Additionally, the negative effects on growth from heightened tariffs and immigration restrictions are expected to overshadow any gains.

Further inflation will likely lead the Federal Reserve to decrease rates by only a quarter point in the upcoming year, according to Nomura, which is a smaller cut than the full percentage point projected by Fed officials in September.

Consequently, both Nomura and Pantheon predict a slower growth rate for the economy in the coming year.

Sweet, however, notes that tax cuts could stimulate growth by three-tenths of a percentage By 2026, higher trade and immigration regulations are expected to slow economic growth by 0.6 percentage points in 2028.

Additionally, it is anticipated that the Federal Reserve will continue to lower interest rates until increased tariffs lead to higher inflation by 2026.

Mark Zandi, the chief economist at Moody’s Analytics, mentioned, “Although President Trump’s policies may hinder economic performance, they are unlikely to completely undermine it. The President may choose to soften his approach or pivot if it appears his policies are causing considerable economic harm.”