Voters’ frustration with their economic lives played a central role in propelling Donald Trump to a second term. Now it will be up to Trump to try to change that trajectory and deliver on his sweeping promises of economic recovery.
Trump will inherit an economy that is already on relatively solid footing. Inflation has slowed and wages are starting to catch up with higher prices. While companies are not hiring at the same breakneck pace as they emerged from the pandemic, the labor market remains strong by historical standards, with low unemployment and about one job opening for every person looking for work.
But despite the signs of strength in the economy, the cost of living and overall dissatisfaction with the economy were repeatedly cited as among the top concerns by voters heading into the election. Housing costs are a major pressure point on household budgets, after rents rose by an average of 24% over the past four years, and with mortgage rates above 6%, buying a house has become out of reach for many households. Food is another rising cost, with the average cost of groceries rising 22% over the past four years and food banks seeing record numbers of people seeking help.
Trump has put forward a wide range of proposals that he says would improve America’s financial picture. Many of these will require action from Congress, where Republicans will control the Senate and hope to control the House of Representatives. Trump’s economic plans include deporting millions of immigrants, imposing tariffs on all goods entering the US, encouraging more oil production, cutting corporate taxes and eliminating taxes on Social Security income and tips.
While inflation has been a top issue for voters, one of Trump’s central campaign promises — imposing tariffs on all goods imported into the U.S. — would likely raise prices and cost workers their jobs, according to economists, business groups and even some Trump allies. Trump has rejected those claims.
“To me, the most beautiful word in the dictionary is ‘tariff,’” Trump said during a speech to the Chicago Economic Club. “It’s my favorite word. A PR agency is needed.”
Under Trump’s proposal, the US would impose a tariff of at least 10% on all goods entering the US from abroad, and a 60% tariff on products imported from China. The tariffs are paid to the federal government by the company that imports these goods, such as a retailer or manufacturer. Those companies can pass the costs on to consumers by raising prices, or absorb the costs and make a smaller profit.
If past rates are any indication, consumers will likely see higher prices. Not only do companies often pass on the increase, but competitors who are not subject to the tariff often also increase prices. Companies like AutoZone and Black & Decker have already warned investors that they will raise prices if Trump follows through with his tariff proposal. Tariffs Trump implemented in 2018 and 2019 led to higher prices on a range of goods including washing machines, handbags and tires, according to a National Bureau of Economic Research study.
In the shoe industry, consumers and retailers were hit by a 7.5% tariff that Trump imposed in 2019 on hundreds of millions of shoes imported from China. While some retailers absorbed the costs of these tariffs and negatively impacted their bottom lines, others passed the costs on to consumers by raising the prices of their shoes, said Matt Priest, head of the Footwear Distributors and Retailers of America .
“We can confirm that if you charge us more to bring in a product, it’s going to cost more for the consumer to buy that product,” Priest said. “It’s kind of like Econ 101.”
Trump has argued that imposing tariffs on goods from China would encourage companies to move their factories to the US, creating jobs and boosting sales for American manufacturers.
But multiple studies, including those on Trump’s past tariffs and previous rounds of tariffs under various administrations, have found that raising tariffs has not led to a significant number of companies moving to the U.S., and that it has not created jobs for domestic producers. Trump’s 2018 tariffs on steel and aluminum were more likely to reduce manufacturing employment due to higher costs for companies that use steel and aluminum in their products, according to a Federal Reserve Board study.
For shoemakers, Trump’s 2019 tariffs have not translated into companies moving production to the U.S. due to high labor costs and the lack of supply chains and materials in the United States, Priest said. He said he doesn’t see another round of tariffs from Trump changing that analysis.
“The higher labor costs, a lack of labor interest in making shoes, a lack of material and material suppliers here in the United States,” Priest said of moving shoe production to the US. “You can put tariffs at 200% and it still won’t happen. It’s just not price competitive.”
Trump has pledged to “beat” inflation, although the rate at which prices are rising has already returned to historical norms of 2% to 3% in recent months after peaking in 2022. But prices for many essentials still remain above their level. pre-pandemic levels.
To lower housing costs, Trump has said he would allow homes to be built on federally protected land, something that could help increase the supply of homes in places like Nevada and Arizona. He has also said he would eliminate regulations on builders, although many housing regulations are set at the state and local level. He has said he would promote homeownership through tax incentives, but his campaign was not specific about what those incentives would be.
Trump has said he would cut costs overall by cutting energy prices by 50% in his first year in office, something industry experts have said is unlikely. To do this, Trump has said he would allow oil companies to drill in more places, such as on federal land in Alaska, and remove barriers that speed production.
Oil producers are already pumping record levels of oil into the US and are limited in the amount of oil they can drill by labor and infrastructure constraints. Companies are also discouraged from flooding the market with too much oil because this would drive down the price, potentially causing them to lose money on every barrel they pump. Oil prices are also determined by a global market where other countries, such as Saudi Arabia or Russia, could cut production to boost prices and maintain profitability.
Trump has said he will carry out “the largest deportation in the history of our country” of undocumented immigrants, claiming it would help the economy by freeing up housing and creating jobs for American citizens.
However, business groups have warned that deporting millions of immigrants could create a labor shortage that would ultimately drive up prices, especially in areas such as food production and housing, where immigrants make up a significant portion of the workforce.
In the construction industry, which is already facing a shortage of hundreds of thousands of workers, there are an estimated 1.5 million undocumented workers who make up about 13% of the total workforce, according to data provided to NBC News by the Pew Research Center.
Jim Tobin, CEO of the National Association of Home Builders, told NBC News last month that a mass deportation of immigrants would “harm the construction industry and worsen our labor supply and housing affordability problems.”
NABH and other industry groups have said a major reason for higher housing costs in recent years has been a mismatch between supply and demand, after housing construction collapsed following the Great Recession. As homebuilders have ramped up construction of single-family homes and apartment buildings in recent years, they have faced higher costs of labor and materials, further driving up the price of homes.
Across the economy, an analysis by researchers at the University of New Hampshire found that a mass deportation of immigrants could reduce the U.S. economy, as measured by gross domestic product, by as much as 6.2%, or about $1.7 trillion in lost productivity.
Trump has proposed a number of tax cuts, including a complete elimination of the federal income tax. But the likelihood that these plans will be implemented varies, as Congress would have to pass legislation to change the tax system. While some plans are scant in detail and there are many variables for how his proposals will be implemented, economists at the University of Pennsylvania estimate that Trump’s tax and spending plans would increase the budget deficit by $4.1 trillion if billed the effects they would have on the economy are taken into account. the broader economy.
One of the most likely tax proposals to become reality would be an extension of the tax cuts introduced during Trump’s first administration, which are set to expire in 2025. Those cuts lowered the corporate tax rate from 35% to 21%, reducing individual income. tax rates and increased the standard deduction.
Trump has suggested he would cut corporate taxes even further, to 15%.
One of Trump’s more consistent campaign promises is to eliminate taxes on tips, which could affect about 2.5% of workers who receive tips as part of their income. But it could cause major disruptions in how workers are paid if more industries move to a tipped system where workers are paid a minimum wage and expected to get most of their income tax-free from tips. Even white-collar industries could adopt a system where part of workers’ income is classified as tips.
That could wreak havoc on workers and consumers and reduce the amount of income taxes the federal government collects.
Trump has also said that the income seniors receive from Social Security should be tax-free. About 40% of Social Security recipients pay federal income taxes, usually because they have other sources of income that put them above a certain threshold where they must pay income taxes, according to the Social Security Administration.
Eliminating a Social Security tax would mean a loss of tax revenue for the federal government, which would then increase the deficit or have to be offset by spending cuts.
This article was originally published on NBCNews.com
