Here are 5 ways Trump could affect the economy: NPR

Former President Trump speaks during a rally in Richmond, Virginia, March 2, 2024. A second Trump administration could reshape the economy, from tariffs to tax cuts.

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A second Trump administration has the potential to fundamentally reshape the economy.

President-elect Trump has promised to raise tariffs on imports, order large-scale deportations of immigrants and cut taxes and government regulations during his second term.

While it's not certain when — or how — these measures might be implemented, here's what they could mean for the U.S. economy.

Tax cuts

There's a reason the stock market skyrocketed after Trump's election victory. Investors expect a more business-friendly administration, including tax cuts.

During a new term, the former president wants to extend parts of the 2017 tax cut that expire next year and calls for additional corporate tax cuts.

He has also floated the idea of ​​exempting tips and Social Security benefits from federal taxes.

The final size and form of a tax cut could depend on whether Republicans retain control of the House. But at least the extension of most individual tax cuts appears likely.

“Some additional tax cuts appear likely in our view, although the timing, size and details are highly uncertain,” Wells Fargo economists Jay Bryson and Michael Pugliese wrote in a research note, adding that additional tax cuts in 2026 would lead to slightly faster economic growth could lead and 2027.

Tariffs

However, the economic stimulus from tax cuts would be partially offset by Trump's proposed tariffs, which would increase costs for U.S. businesses and consumers and likely lead to retaliation from U.S. trading partners.

Trump has proposed imposing a 10-20% tariff on all imports, with significantly higher tariffs on imports from China.

Shipping containers are seen at the Port of Newark in Newark. NJ on October 4, 2024. Trump's plans to impose blanket tariffs could drive up prices on many goods while risking retaliation from trading partners.

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Forecasters at Pantheon Macroeconomics expect a 10% tariff would increase inflation by about 0.8 percentage points next year, putting additional strain on U.S. manufacturers.

While Trump says tariffs will encourage companies to set up shop in the U.S., economists are skeptical. “Given relatively high labor costs in the U.S., it will continue to be much cheaper to source goods from overseas, limiting the reshoring push,” said Pantheon economist Samuel Tombs.

National debt

While the tariffs would bring some additional revenue to the government, Trump's overall economic policies — including proposed tax cuts — are expected to widen the federal deficit and increase the government's borrowing costs.

The Committee for a Responsible Federal Budget estimates that Trump's fiscal policies would add an additional $7.75 trillion to the national debt over the next decade.

The prospect of so much additional debt spooked bond investors and caused bond yields to rise sharply on Wednesday. Mortgage rates, which tend to follow the 10-year Treasury yield, are also expected to rise.

immigration

Trump has called for a mass deportation of immigrants who are in the country illegally. During his first term in the White House, Trump also took steps to restrict legal immigration, and his advisers have drawn up plans to do so again, the Wall Street Journal reports.

Analysts at the Brookings Institution, the American Enterprise Institute and the Niskanen Center predict that net migration to the U.S. could be significantly lower — even negative — during a second Trump administration, with unfortunate consequences for the U.S. economy.

U.S. Border Patrol agents take asylum seekers into custody after they cross a remote area of ​​the U.S.-Mexico border near Jacumba Hot Springs, California, on September 19, 2024. Trump's plan for mass deportations, if implemented, could deplete the economy of the workforce it needs.

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Strict immigration restrictions could stifle the supply of foreign-born workers that support the U.S. labor market at a time when many baby boomers are retiring.

“There may well be valid reasons to adopt such a policy,” write Bryson and Pugliese of Wells Fargo. “But side effects of a policy that restricts immigration and deports undocumented people would likely be increasing pressure on labor costs and an adverse impact on the country’s potential economic growth rate.”

The Federal Reserve

Inflation has cooled significantly, allowing the Federal Reserve to begin cutting interest rates. However, the central bank could take a more cautious approach if Trump's policies put more upward pressure on prices. The central bank is widely expected to cut its key interest rate by a quarter of a percentage point on Thursday. But Pantheon's Tombs expects fewer rate cuts next year because of Trump's election.

During his first term in the White House, Trump frequently called on the Fed to cut interest rates more aggressively, at times lambasting Fed Chairman Jerome Powell, who he appointed. Powell's term ends in 2026, giving Trump the opportunity to nominate his successor. Trump could also replace Michael Barr as the Fed's top banking regulator when his term as the regulator's vice chairman expires this year.

The Fed is designed to be insulated from political pressure, allowing it to make unpopular decisions to curb inflation when necessary. This independence is central to the Fed's credibility. However, Trump has regularly flouted this norm and suggested that the president should have a say in monetary policy.

Congress has generally defended the Fed's independence, but that could change in a second Trump administration.