How Donald Trump’s 2024 victory will affect the economy
President-elect Donald Trump’s plans for higher tariffs, lower taxes and more restrictions on immigration are expected to restore inflation, but economic forecasts are divided on whether they will weaken or boost the US economy. in the near future.
Ultimately, Trump’s signature economic policies could erase the benefits of his low-tax plans. That would slow overall growth but stop it from triggering a recession, economists say.
But Americans are living for the moment, hoping that Trump can ease the pain of inflation over the past four years. Polls always showed the economy and inflation were at their peak. In the latest Forbes/HarrisX national poll released on Monday before Election Day, 36% of respondents said prices/inflation was their top concern, followed by immigration and the economy at 32% and 31%, respectively.
“I voted for Donald Trump because four years ago, the economy was better than it is now and I hope he gets the economy right again,” said Charles Maleski of Chalfont, Pennsylvania.
Trump, the 45th Republican President, won the election on Wednesday over Democratic Vice President Kamala Harris. Control of the US Senate shifted to the Republicans, while as of Thursday afternoon the House remained in session.
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Increased market share
Investors seem to agree with Maleski. On Wednesday, the day after Trump won the presidency, the blue-chip Dow industrials, the broader S&P 500 and the Nasdaq Composite indexes ended at record highs, with investors anticipating lower taxes and Deregulation generates economic growth and profits, economists said.
The market response “confirms the view that the Trump administration will be good for US businesses in general,” said Jeffrey Roach, chief economist at LPL Financial in Charlotte, North Carolina.
Is this just temporary happiness?
It’s hard to say now whether all those policies will pan out the way people expect, policy experts said.
“There is a lot of speculation in the market because the policies of President Trump and the Republican Congress will be very different from those of the Biden Administration,” Michael O’Rourke, chief market strategist at JonesTrading, said in a note. – email. “It’s incredibly difficult to make predictions when you don’t have the facts of existing policy. Investors are basing their decisions on the basic framework of what President Trump plans to do and the missing facts, making judgments that most optimistic.”
Some economists have warned that the policies proposed by Trump could end up hurting consumers.
“In the long run, the opposite situation may occur” if government spending and broad import tariffs are not adjusted for inflation, said Naomi Fink, an expert on head of global strategy at Nikko Asset Management.
Additionally, it is important to note that Trump will be a one-term president. “A two-term presidency often brings significant negotiations (including budget negotiations) between the executive and legislative branches during the second term, which can increase the incentive for a candidate seeking re-election to reduce size.” financial institutions,” Fink wrote in the report. “This incentive is not there for a one-time candidate … (and) could widen the gap between the short-term effect of expanding the US economic cycle and the effect of long-term risks.”
But economists doubted that a recession was on the cards. “We think a period of slow GDP growth in 2025 is likely, rather than a recession,” Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics, wrote in a note to clients.
Here is a summary of the potential economic impacts:
Fees
Trump has threatened to impose tariffs of 10% or 20% on all imports and up to 60% on Chinese exports.
During his first term, Trump’s tariffs slapped a tenth of US imports with tariffs, mostly on steel, washing machines and solar panels. His current offer is even broader and will affect the assets of many customers, Nomura wrote in a research note Wednesday.
American retailers and manufacturers have traditionally passed on part of their higher costs to consumers through price increases while absorbing some of them in small profit margins.
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As a result, Nomura raised its inflation forecast to 3.1% in 2025 and 2.7% in 2026 from its earlier estimates of 2.3% and 2.1%, respectively. The Fed’s target inflation rate was 2.7% in September, down from about 6% in 2022.
The new tariffs will reduce the purchasing power of Americans by $78 billion, the National Retail Federation estimates, causing households to hold back on spending and hurting economic growth. The Peterson Institute for International Economics estimated that the tariffs would cost each US household about $2,600 a year.
Tariffs are also likely to prompt affected countries to retaliate with their own tariffs against the US, depressing American exports and further damaging the economy, Oxford Economics wrote in a research note.
But Ryan Sweet, Oxford’s leading US economist, believes Trump will likely scale back his trade proposals and impose more targeted tariffs on China, Mexico, Canada and the European Union. He also pointed out that the rates will take time to kick in, increasing inflation by less than three-tenths of a percent by 2027.
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Taxes
Trump and the Republican Congress would likely expand the 2017 Tax Cuts and Jobs Act for both families and businesses. For individuals, that would likely mean lower tax rates, a larger itemized deduction and an expanded child tax credit, Sweet said.
However, businesses will be able to continue to recoup capital investments and research and development costs quickly, Sweet wrote. But Nomura doubts Republicans will support some of Trump’s proposals, such as lowering the corporate tax rate or exempting Social Security from the tax bill.
Trump is likely to cut spending on public services, Sweet said, imposing stricter requirements on Medicaid beneficiaries and the Nutrition Assistance Program, also known as food stamps.
Immigration
Trump has vowed to restore programs that force asylum seekers to wait in Mexico while their cases are processed and to deport millions of immigrants who need permanent legal status. His plan would go further than President Joe Biden’s actions that strengthened the implementation in June.
Sweet estimates of immigration to the US could drop to 800,000 per year from 1.1 million. Immigration has caused a large increase in the labor force that has reduced the labor shortage associated with the epidemic and growth in wages, helping to lower inflation. Strictly restricting immigration would likely increase inflation and slow economic growth by reducing hiring and increasing consumption of foreign visitors, Sweet and Nomura said.
What is the current economic outlook?
So what is the bottom line of the American economy?
Nomura says any benefits to consumer spending from lower taxes will be reduced, to use, their extra money. And the benefits can be reduced by the rate of growth from higher rates and reduced migration.
Higher inflation will also mean the Federal Reserve will cut rates only once a quarter next year, Nomura said, instead of the 1 percent cut Fed officials had predicted in September.
As a result, Nomura and Pantheon think the economy will grow very slowly next year.
But Sweet said the economic boost from lower taxes should lift growth by three-tenths of a percent in 2026 before tougher trade and immigration regulations cut growth by six-tenths of a percent in 2028.
And he thinks the Fed will continue to cut rates aggressively until higher rates push up inflation in 2026.
Mark Zandi, chief economist at Moody’s Analytics, said, “Although President Trump’s policies will slow the economy, it will not destroy it, as the President may balance his policies with changed if it appears that they are doing too much damage to the economy.”
(This story has been updated to include new information.)
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