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.
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.