How Is Trump Handling the Economy?

On May 12, President Donald Trump issued an executive order promising to lower drug prices, but he offered no details on how it would work or how effective it might be.

Trump said he would order drug companies to reduce prices for all pharmaceuticals to “most-favored nation” levels — the lowest amount a pharmaceutical company charges any other wealthy, developed country. He also said his administration would “end global freeloading” and would take aggressive actions against drug manufacturers that don’t comply. He gave drug makers 30 days to negotiate lower prices.

On March 27, the Trump administration announced that 10,000 workers in the Health and Human Services Department (HHS) would be laid off. Another 10,000 employees have opted for buyouts and early retirements, which brings the total job cuts to 20,000 — about one-quarter of the department’s 82,000 person workforce.

The plan, under the leadership of Health Secretary Robert F. Kennedy Jr., is to restructure the department by consolidating 28 divisions into 15, including the creation of a new division called the Administration for a Healthy America (AHA).

“I want to promise you now, we’re going to do more with less,” Kennedy said in a video posted on YouTube. He added, “The entire federal workforce is downsizing now, so this will be a painful period for HHS.”

The Health and Human Services Department is responsible for protecting public health and administering more than 100 programs. That includes programs that service children, families, seniors, people with disabilities and underserved communities. HHS is also charged with managing Medicaid and Medicare; administering drug and food safety; leading efforts in disease prevention and other medical research; responding to public health emergencies; and providing mental health and substance abuse support programs.

On March 20, Trump issued an executive order to shutter the Department of Education (ED). The order shifts many responsibilities of the department onto states and other federal agencies.

Trump has long vowed to get rid of the ED but cannot fully do so without an act of Congress.

Certain functions of the ED are guaranteed under the law including, as the release mentions, formula funding; federal student loans and Pell grants; funding for special needs students; as well as competitive grantmaking. The order says all statutory functions will continue to be carried out by the federal government.

On March 28, Trump said from the Oval Office that the ED’s $1.6 trillion student loan portfolio would be transferred to the Small Business Administration. He added that oversight of special education services and nutrition programs would be transferred to the Health and Human Services Department.

» MORE: Trump and student loans: What could happen and how borrowers can prepare

Secretary of Education Linda McMahon said in a press release, “We’re going to follow the law and eliminate the bureaucracy responsibly by working through Congress to ensure a lawful and orderly transition.”

McMahon also said, “Teachers will be unshackled from burdensome regulations and paperwork, empowering them to get back to teaching basic subjects. Taxpayers will no longer be burdened with tens of billions of dollars of waste on progressive social experiments and obsolete programs. K-12 and college students will be relieved of the drudgery caused by administrative burdens—and positioned to achieve success in a future career they love.”

» MORE: Trump orders the closure of the Department of Education: Now what?

President Donald Trump stoked recession fears following a Fox News interview that aired on Sunday when he didn’t deny the possibility of a recession. He told Fox News, “I hate to predict things like that. There is a period of transition, because what we’re doing is very big. We’re bringing wealth back to America. That’s a big thing. And there are always periods of, it takes a little time. It takes a little time, but I think it should be great for us.”

On March 6, Trump paused tariffs on all Mexican and Canadian imports under the 2020 free trade deal, known as the United States-Mexico-Canada Agreement. The pause will be in effect until April 2.

Trump's 25% tariffs on goods not included in the trade deal remain in effect. On Tuesday, an additional 10% tariff was also levied on Chinese goods, bringing the total added tariff to 20%.

The Trump administration is eyeing a change in how gross domestic product (GDP) is measured in the wake of federal spending cuts.

On Sunday, Commerce Secretary Howard Lutnik told Fox News that the Trump administration may split government spending from GDP. He said, “You know that governments historically have messed with GDP. They count government spending as part of GDP. So I’m going to separate those two and make it transparent.”

Similar remarks were made by Elon Musk, billionaire and leader of the so-called Department of Government Efficiency (DOGE) on Feb. 28. DOGE has recently taken action to lower government spending, which includes firing thousands of federal employees, freezing federal funding and eliminating government contracts.

It’s unclear why the administration has put the target on GDP data transparency since the Bureau of Economic Analysis (BEA) already breaks down government spending at the federal, state and local levels for each quarter. Those results are published by the BEA on a quarterly basis.

Economic data has shown some disappointing figures that include stubborn inflation levels; fewer hires; and lower consumer spending. Consumer confidence in the economy is down, as well. The latter is largely due to Trump’s recent tariff announcements, according to the Conference Board’s recent survey results.

On Feb. 10, a federal judge ruled that Trump’s team has continued freezing federal spending and grants. On Jan. 27, the Office of Management and Budget ordered a temporary pause on all federal funding, with some exceptions. Rhode Island District Court Judge John J. McConnell said that Trump’s team has not complied with a court-ordered pause to the spending freeze.

In his decision, McConnell said that the broad, sweeping funding freeze is “likely unconstitutional and has caused and continues to cause irreparable harm to a vast portion of this country.” Federal spending is approved each year by Congress.

The Trump camp told the court that it is “just trying to root out fraud.” The judge ordered Trump to resume the funding of all spending programs that were previously funded and must continue funding other agencies, specifically including the National Institute for Health (NIH). On Sunday, the NIH announced it was capping funding for indirect funding costs at 15%.

On Feb. 11, President Trump announced 25% tariffs on all steel and aluminum imports. The tariffs go into effect on March 12.

The top importers of steel to the U.S. include Canada, Mexico, Brazil, South Korea, Japan, Germany, China, Taiwan, Vietnam and Algeria, according to the International Trade Administration. Trump said that no trade partners would be exempt from the tariffs.

On Feb. 6, during a closed-door meeting with GOP House leaders, Trump reportedly laid out his tax priorities, which include:

• Extending the expiring 2017 Tax Cuts and Jobs Act. 

• Expanding the State and Local Tax (SALT) deduction. 

• Enacting tax breaks for products that are made in America.

• Enacting his “no tax on tips” plan.

• Cutting taxes on overtime pay.

• Cutting taxes on Social Security benefits.

• Nixing tax breaks for owners of sports teams. 

• Eliminating the carried interest tax deduction

The Committee for a Responsible Federal Budget (CRFB), analyzed Trump’s tax priorities and estimates it would be costly, resulting in a revenue reduction by anywhere from $5 trillion to $11.2 trillion over 10 years; and a 1.3% to 3% reduction in Gross Domestic Product (GDP). The CRFB projected that the tax priorities as proposed would boost debt to anywhere from 132% to 149% of GDP over 10 years, from an estimated 100% at the beginning of 2026, unless the costs of the priorities are otherwise offset.

Confusion over the details of a federal funding interruption continued throughout the week with seemingly no clear answer as to whether or not the pause was still in place.

But on Jan. 31, a federal judge in Rhode Island granted a temporary restraining order that blocks the pause. U.S. District Judge Jack McConnell approved the request after hearing arguments in a lawsuit filed by 22 Democratic-led states and the District of Columbia. In the decision, the judge wrote that the White House’s actions likely “violate the Constitution and statutes of the United States.” The restraining order is set to last until the court rules on the state’s motion for a preliminary injunction.

It all started with a memo issued on Jan. 27 by the Office of Management and Budget (OMB), which called for the pause of all federal spending, grants and other financial assistance programs. The OMB said the programs would be reviewed to ensure they align with President Trump’s various executive orders.

Assistance programs and activities that the memo named during the review included, “financial assistance for foreign aid, nongovernmental organizations, DEI, woke gender ideology, and the green new deal.”

But there was little clarity on which specific programs the memo was referring to. Various reports speculated that the pause would have included Medicaid; transportation funding; small business loans; disaster relief aid; FHA mortgage insurance; as well as other funding for state, local and tribal governments. Assistance programs for individuals — Medicare, Social Security, food assistance through the SNAP program and student loans — were expected to continue without interruption.

Late on Jan. 28, after a day of uncertainty and conflicting reports on the scope of Trump's order, a federal judge in Washington D.C. granted a "brief administrative stay" to block the spending freeze pending further examination by the courts. Judge Loren AliKhan's order expired on Feb. 3, at 5 p.m. EST.

The following afternoon, the White House issued a memo rescinding the OMB order, but a later post on X from the White House Press Secretary Karoline Leavitt claimed a funding freeze was still in place. Leavitt said the purpose of the memo was “To end any confusion created by the court's injunction.”

Intention aside, Leavitt’s comments launched even more chatter about the reality of the pause.

However, Sen Chris Murphy (D-CT) confirmed on X that the funding shutdown was still in place.

Sen. Tim Kaine (D-VA) said in a video he posted on X “This thing ain’t over, we’re going to have to keep battling.”

The initial memo set a Feb. 10 deadline for agencies to submit detailed information on programs, projects or activities included in the pause. There may also be possible exceptions on a case-by-case basis, the memo notes.

The pause faces further potential legal wrinkles. The Spending Clause in the U.S. The Constitution gives Congress the power to fund all kinds of programs. Each year, Congress approves funding for grants, loans and financial assistance programs — that makes those programs legal obligations.

The Impoundment Control Act of 1974 requires the executive branch to spend funds that Congress approves of. In January 2020, the U.S. The Government Accountability Office said the OMB’s withholding of obligation funds for the Department of Defense for assistance to Ukraine violated the ICA. In the memo, the GAO wrote, “Faithful execution of the law does not permit the President to substitute his own policy priorities for those that Congress has enacted into law.”

On Jan. 27, Trump said he plans to enact tariffs on steel, aluminum, copper, pharmaceuticals, computer chips and semiconductors, in the hopes of bringing manufacturing back to the U.S.

Trump said tariffs on computer chips and semiconductors from Taiwan could be anywhere from 25% to 50% or even up to 100%. Tariffs on chips and semiconductors could lead to higher prices for computer products including smartphones.

In response, the Taiwanese government said the current business model with the U.S. is a win-win, while the Taiwan economy ministry called the two nations’ semiconductor businesses “highly complementary to each other.”

The Taiwan Semiconductor Manufacturing Co. (TSMC) — the largest producer of semiconductors in the world — is investing $65 billion in Arizona for new chip manufacturing plants, as part of the Biden administrations’ CHIPS and Science Act. The Act also gave funding to U.S. companies for the creation and expansion of chip manufacturing plants.

Trump has promised that his policies would lower inflation. However, the president has been vague about exactly how they would do that.

The pandemic helped spark inflation that peaked at a growth rate of 9.1% in June 2022. Inflation has since slowed to a pace of 3.3%, according to the most recent consumer price index for May. However, prices do remain elevated, with food prices up about 26% since the start of 2020.

Trump has offered one specific promise when it comes to reducing costs for consumers: lowering gas prices. It’s worth noting that the price of gas is largely dictated by market forces outside of the president’s control. But oil production can impact supply, and Trump has said time and again that he wants to “drill, baby, drill” — in other words, increase U.S. oil production on federal lands.

During Trump’s first term in office, he increased oil production from 8,846 barrels per day to 12,311 barrels per day, according to Energy Information Administration data. Former President Joe Biden, meanwhile, increased U.S. oil production to a record high of 12,927 barrels per day.

What experts say: Even though Trump has detailed few plans for slowing the growth of consumer prices, his agenda could still have a big impact on inflation — but not the one he’s touting.

A group of 16 Nobel Prize-winning economists signed a letter saying that Trump’s economic proposals would “reignite” inflation and added that they were “deeply concerned” about the risks of a second Trump presidency, as first reported by Axios on June 25. The economists wrote,

“We believe that a second Trump term would have a negative impact on the U.S.'s economic standing in the world and a destabilizing effect on the U.S.'s domestic economy.”

According to an analysis by economists at Moody’s Analytics, a research division of one of the world’s most prominent bond-rating agencies, Trump’s economic policies would lead to higher inflation at an estimated rate of 3.6% in 2025.

The report, released June 20, also projects that Trump’s policy proposals, if enacted, could trigger a recession by the middle of 2025. Moody’s projects weaker economic growth over the four-year term as a result of Trump’s policies as well.

Trump says he would impose a 10% tariff applied across all foreign imports on top of any existing tariffs, as well as a 25% tariff on Canada and Mexico. The revenue, he says, would offset proposed tax cuts. He has even proposed eliminating the federal income tax and replacing it with tariff revenue.

» MORE: What does the U.S. manufacture and how does it impact the economy?

<br>Trump has also called for a tariff of 60% or higher on Chinese imports. During his presidency, Trump leaned into tariffs — particularly on China — as one of his key foreign policy tools. Biden kept Trump’s tariffs in place when he took office.

But the effectiveness of the tariffs Trump imposed against China in his first term is, in an economic sense, difficult to sell: In December 2019, Bloomberg Economics estimated that Trump’s trade war with China during his first term cost the U.S. economy $316 billion.

What experts say: Tariffs are, functionally, taxes levied on importers. When importers are taxed, the price of goods tends to increase, and that cost falls on the American consumer. Economists and think tanks say Trump’s tariff proposals could exacerbate foreign trade hostilities, and one of the results would likely be tariffs on American exports. Experts say it could also fuel inflation as U.S. consumers bear the burden of higher costs.

An analysis by the Center for American Progress, a left-leaning think tank, says Trump’s 10% across-the-board tariff would result in a roughly $1,500 annual tax burden to the typical household. That estimate is similar to an analysis released in May by the Peterson Institute for International Economics (PIIE), a nonpartisan think tank that found the proposal would add a $1,700 annual tax burden to middle-income American households.

The authors of the PIIE analysis wrote, “In practice, no study of the Trump tariffs has found any evidence that U.S. tariffs result in lower prices for U.S. importers. On the contrary, study after study has shown that U.S. tariffs levied since 2017 have instead been fully ‘passed through’ to American buyers.”

In terms of the tariffs’ potential effectiveness in offsetting tax cuts, experts say it would be unlikely to fully replace the revenue lost from Trump’s proposed cuts to tax rates. In fact, it would increase the deficit, according to the American Enterprise Institute (AEI), a right-leaning think tank. A June 17 post by Alex Brill, a senior fellow at AEI said, “Simple math reveals this is infeasible from a budgetary perspective. Basic economics suggests that if the US imposed massive tariffs, imports would slump, deficits would soar, and a recession would be likely.”

A June 19 analysis by The Cato Institute, a libertarian think tank, said Trump’s tariff plans are not “a good way for governments to raise revenue” and are also “mathematically implausible even with radical spending cuts.”

When asked during a lengthy interview by Time on April 30 if he’s comfortable with tariffs raising prices and contributing to inflation, Trump said, “I don't believe it'll be inflation. I think it'll be lack of loss for our country.”

The reasoning behind Trump’s view on tariffs is that foreign producers, in a desperate attempt not to lose market share in the U.S., will lower their prices to offset the impact of the tariffs. That would, in theory, pay the tariff out of their profits, thereby avoiding a tax on American consumers.

But Trump’s previous tariffs haven’t worked out that way: A Federal Reserve study from October 2019 found that the positive impacts of tariffs are offset by both retaliatory tariffs on U.S. goods and the higher costs that American companies shoulder to import supplies. The study also found that the Trump-era tariffs also didn't boost U.S. manufacturing.

Trump told the audience at the Black Conservative Federation’s gala in South Carolina on Feb. 27, “I will make the Trump tax cuts the largest tax cut in history.” Here are what some of his tax plans entail, according to the Tax Foundation, a nonpartisan policy think tank:

• Extend 2017 tax cuts permanently. Many of the tax cuts in Trump’s 2017 Tax Cuts and Jobs Act (TCJA) are expiring at the end of next year. Those include estate tax cuts and individual income tax cuts. 

• Replace personal income taxes with an “all tariff” policy. On June 13, Trump told CNBC he was considering a policy to get rid of the personal income taxes and replace them with import tariffs.

• Eliminate taxes on tipped income. During a campaign event in Nevada on June 9, Trump proposed doing away with taxes on income from tips. 

• Lower the corporate tax rate by one percentage point. On June 13, during a meeting with some of the nation’s leading chief executives, Trump said he planned to cut the corporate tax from its current 21% rate to 20%. In Trump’s first term, he slashed the rate from 35% to 21%.

What experts say:

A key focus of Trump’s campaign is a large-scale crackdown on immigration, including a proposal to round up and deport millions of unauthorized immigrants. He says he plans to do so by revamping various immigration laws and deploying National Guard troops and local police departments in addition to federal agents.

What experts say: Trump’s immigration plans are likely to face swift and strong legal opposition. The logistics of the proposal itself are hazy, although Trump says it would require the creation of camps to detain people. The financial ramifications are also unclear.

The report from Moody's Analytics emphasizes the “crucial” part immigrants play in the production of U.S. goods and the world food supply. The analysis says that if Trump’s immigration policies are enacted, the outflow of foreign immigrants could result in a tighter labor market and contribute to faster-rising labor costs, and therefore, prices.

In an interview with CNBC on March 11, Trump said that he was open to making cuts to Social Security and Medicare as a way to reduce the national debt. But after a quick rebuttal from the Biden campaign (“Not on my watch,” Biden posted on X), Trump’s campaign immediately walked back his comments. Trump has since vowed to protect the entitlement programs.

Over the years, Trump has been inconsistent in his messaging when it comes to entitlement programs. While campaigning in 2016, Trump pledged never to cut Social Security, Medicaid or Medicare, in a break from the GOP’s traditional agenda. However, during his first term in office, Trump proposed cuts to entitlement programs several times. The most recent was in 2020 when the president proposed cuts to both programs as part of his 2021 budget.

What experts say: Social Security and Medicare are the largest federal government programs. Actuaries agree that the trust funds that help underpin both Social Security and Medicare will become insolvent in the 2030s unless funding is increased or other changes are made. If the trust funds run dry, the programs will subsist on annual payroll taxes, and recipients could see lower benefits.

During a campaign speech in Savannah, Ga. on Sept. 24, Trump proposed new incentives that he says would spur manufacturing job creation.

Trump promised to implement R&D tax credits, which would allow businesses to write off 100% of expenses in their first year, including the cost of machinery or equipment. It’s a complete reversal of his 2017 tax cuts that included a phase-out of R&D expenses in their first year. Currently, R&D costs must amortize over five years before a business can write-off the expenses.

During a campaign stop in New York on Sept. 1, Trump proposed capping credit card interest rates at around 10%.

The average credit card interest rate is 22.80% as of November 2024, according to Federal Reserve data. The interest rate consumers get is based on a number of factors including credit scores and other financial information.

Trump’s proposal isn’t the first. In September 2023 Sen. Josh Hawley (R-Mo.) proposed an 18% interest rate cap on credit cards. And a 2021 bill cosponsored by Senate Democrats would provide consumers with the same 36% interest rate cap that service members are entitled to under the Military Lending Act. There are also 42 states plus the District of Columbia that cap interest rate fees for a $10,000 loan at a median cap of 27%.

Adding a cap to interest rates would require an act of Congress and would likely face legal scrutiny. Critics of interest rate caps on credit lending also argue that a cap would have negative effects for borrowers who wouldn’t qualify for credit cards with such a low APR.

A 2023 analysis of Illinois’ 36% interest rate cap on unsecured installment loans, which was instituted in 2021, found the rule decreased the number of loans for subprime borrowers by 38%. “Responses to a survey of small-dollar-credit borrowers in Illinois who lost credit access suggest the interest-rate cap worsened the financial well-being of many of these borrowers,” the researchers wrote.

The RNC platform, released in July, outlines several economic and personal-finance related proposals. However, keep in mind this is just an outline of ideas — there are few details on the feasibility of enacting certain plans.

“End inflation, and make America affordable again”

• Lift restrictions on “American Energy Production” to make the U.S. the “Number One Producer of Oil and Natural Gas in the World,” according to the platform proposal. The production would come from multiple sources, the proposal says, including nuclear. The RNC says it would “immediately slash inflation and power American homes, cars and factories with reliable, abundant, and affordable Energy.” 

• “Slashing wasteful Government spending and promoting Economic Growth.”

• Reinstate Trump’s Deregulation Policies and “end Democrats’ regulatory onslaught” on low-and-middle income households.

• Secure the border, “deport Illegal Aliens” and reverse Democrats’ border policies. 

• “End global chaos and restore Peace Through Strength”. It’s unclear what that would entail, but the RNC claims it would reduce geopolitical risk and lower commodity prices. 

“Build the greatest economy in history”

• Cut regulations “that stifle Jobs, Freedom, Innovation and make everything more expensive.” 

• Make permanent the 2017 Tax Cuts and Jobs Act and eliminate taxes on tips for restaurant and hospitality workers. See above for a breakdown of those proposals.  

• Make trade deals by “standing up to countries that cheat and prioritizing American producers over foreign outsources.” 

• Increase energy production to ensure reliable and abundant low-cost energy.

• “Champion innovation” by eliminating regulations related to cryptocurrency; support AI Development “rooted in Free Speech and Human Flourishing”; and send astronauts back to the moon “and onward to Mars” while creating partnerships within the commercial space sector in order to “revolutionize our ability to access, live in and develop assets in Space.”  

“Bring back the American dream and make it affordable again for families, young people and everyone”

A 2024 analysis says that former President Donald Trump’s economic proposals could add an estimated $4.1 trillion to the national deficits over a decade. The Penn Wharton Budget Model, released on Aug. 26, looked at Trump’s various proposals on taxes and tariffs including his plans to extend 2017 tax cuts; eliminate taxes on Social Security benefits; as well as his plans to include a 10% across-the-board tariff on foreign imports. It does not include Trump’s proposal to get rid of taxes on tips.

The analysis found that there could likely be initial financial gains on a macro and personal-level as a result of Trump’s proposals. But over a longer term would result in lower GDP, lower wages and a higher financial burden for future generations.

• From 2025-2034, Gross Domestic Product (GDP) would increase. But over a full 30-year period (until 2054), GDP would decline by 2.1%. 

• Wages could initially increase, but would stagnate by 2034. Over a total 30-year period, wages would be lower by 1.7% in 2054. 

What a Trump win means for your personal finances and the economy President Donald Trump will need to get to work on some of the economic promises he’s made during the election. Multiple analyses of Trump's economic plans project that his presidency is likely to reignite inflation.

What Trump’s win means for small business Here are some of the proposals that may have the biggest impacts on small-business owners across the U.S. including tariffs, tax cuts and more.

What Would Kamala Harris’ Opportunity Economy Look Like? Find out where Vice President Kamala Harris stands on economic issues like battling inflation, medical debt, jobs, health care, housing, child care, small businesses and more.

How Harris and Trump Want to Battle Inflation and Lower Prices Both presidential candidates are promising to give people what they want: to pay less money for most everything. But whether Trump or Harris are capable of lowering prices is debatable.

What Trump and Harris Have in Store for Your Taxes The campaign proposals that most directly impact your finances are tax cuts and credits, and the candidates’ positions couldn’t be more different.

Trump and Harris embrace no-tax-on-tips, experts say it’s bad policy The presidential candidates promise to exempt workers from paying taxes on their tips. But the problem with no-tax-on-tips proposals, experts say, is that they don’t address the fundamental needs of tipped workers.

How Trump and Harris Aim to Address Your Health Care When it comes to health care, the candidates have been light on the details. Harris has focused on things like lowering prescription drug prices; expanding Medicare care coverage; and restoring federal abortion rights. Trump says he supports IVF coverage, but wants to leave abortion to the states. He also said that he has only a “concept” of a plan to replace the Affordable Care Act.

Labor expert: Trump’s Immigration Plan Would ‘Wreak Havoc’ on Workforce, Economy If Trump were to be elected and able to enact his plans to remove millions of people, it could have disastrous effects on the economy. One labor expert explains why.

Harris v. Trump on Student Loans: Where the Candidates Stand As president, Harris would likely champion student loan relief and free community college. Trump would likely restrict or dismantle loan forgiveness and promote access to non-traditional degrees.

Can Kamala Harris Really Add New Housing, Make It Cheaper? Harris is pledging to create 3 million new homes and make housing more affordable, especially for first-time home buyers. Her housing plans are ambitious — and possibly unrealistic, experts say.

Smart Money’s 2024 Presidential Election Series

Hosts Sean Pyles and Anna Helhoski discuss the grand economic promises made by presidential candidates and the intricate realities of presidential influence on the economy to help you understand the real effects on your daily finances.

Election Economics: How Can Presidents Really Impact Your Pocketbook?

How Presidential Policies Affect Prices: Tariffs, Price Control, Immigration and More

Paycheck Politics: What Presidential Tax Plans May Mean for Your Wallet