3 Policies That Could Have Biggest Impact on Economy

The labor market, inflation, and U.S. debt could all move dramatically depending on how much Trump can do. Below are several key issues that we are watching.

Immigration.

Trump has proposed massive deportations and stronger security at the southern border. The labor market is cooling but still tight and could tighten further depending on the workforce’s future.

Immigrants comprise almost 19% of the U.S. labor force, the highest percentage in recorded history.¹ Agriculture, construction, health care, and technology are all industries facing a labor shortage. Immigrants have filled in some gaps. Various industries could be adversely impacted if the available employee pool shrinks. Also, there are 1.13 job openings per job seeker. While vacancies are trending down, wage inflation could rise again if employers must pay workers more.

Trump’s immigration plans could shrink the U.S. GDP; however, it is difficult to say by how much since it is unknown how many people will be deported and blocked from entering the country. 

Tariffs.

Trump wants tariffs on other countries’ goods. (The percentage against specific countries has changed.) If businesses pay more for foreign goods, consumers often pay the price. Academic and governmental studies found that the current tariffs tax Americans by an annual average amount of $625 per household. Also, we do not expect a major renaissance in domestic manufacturing because it would take large tariffs to make U.S. manufacturers competitive with foreign ones.

It should be noted tariffs are a one-off price shock, and some of Trump’s proposed tariffs may be a bargaining tool to achieve other international objectives.

Social Security cuts.

Trump endorses protecting Social Security and has discussed making it tax-free, which could further strain the system’s funding. According to a recent study by the Wharton School of the University of Pennsylvania, cutting taxes on Social Security benefits could cost $1.2 trillion over 10 years. Some models show the system’s trust funds reserves will be insolvent in about 10 years. (It should be noted that some benefits would still be paid after this timeline.) Eliminating part of the system’s revenue stream will likely strain Social Security benefits further.

Social Security tax cuts could also increase the Federal government’s deficit and debt. Congress might be a roadblock for at least part of this plan, partially because of slim Republican majorities. The margin for defections will be narrow.

¹ U.S. Bureau of Labor Statistics: https://www.bls.gov/news.release/pdf/forbrn.pdf