As the new year approaches, all eyes are on what lies ahead for the U.S. economy, especially with a new White House administration on the horizon. The future of inflation in 2025 is a hot topic, and Newsweek reached out to a number of leading economic and political experts to explore what we can expect in the coming years. With President-elect Donald Trump gearing up to take office again, it's clear that his approach to the economy is set to undergo some significant changes, which could have major implications for inflation.
The Importance of Economic Policy in the 2024 Election
It’s no surprise that the economy played a central role in the 2024 election. President Trump, during his campaign, emphasized his vision for the U.S. economy and focused heavily on economic issues that resonated with many voters. Inflation, job growth, and government spending were all hot-button topics, and Trump's economic policies were front and center. As his return to the White House becomes more imminent, he has already laid out plans for sweeping changes to the economy, some of which could drastically affect inflation.
The 2024 election revealed just how much the economy mattered to voters, with many Americans expressing dissatisfaction over President Joe Biden’s handling of inflation. Throughout the campaign, Trump enjoyed a notable lead on the economy, making it a key focus of his platform. Some of his proposed changes, like tariff hikes and government spending cuts, are expected to have a significant impact on inflation in 2025, raising concerns among experts about the potential ripple effects on prices.
Biden’s Economic Claims vs. Voter Perception
President Biden has consistently claimed that the economy under his leadership has been performing well, pointing to lower inflation rates as evidence of success. In March, Biden proudly touted that U.S. inflation was “the lowest in the world.” Later, in August, when asked about whether the U.S. had overcome the post-pandemic inflation that peaked at 9 percent in 2022, Biden confidently responded with a resounding “Yes, yes, yes.”
However, many voters seem to disagree with the president's assessment of the situation, particularly when it comes to the cost of everyday essentials. Gasoline prices and grocery costs have been a point of contention for many Americans, and voters have associated Biden and Vice President Kamala Harris with rising prices at the pump and at the grocery store. Trump, in contrast, campaigned on the promise of lowering prices, a message that resonated with voters frustrated by inflation. Yet, experts have raised concerns about Trump’s proposed blanket tariff policies, especially his plans to impose 25 percent tariffs on key trading partners like Mexico and Canada.
The Impact of Tariffs on Inflation
One of the most contentious aspects of Trump’s economic agenda is his proposed tariff policy, which could have a significant impact on inflation. Trump's plan to raise tariffs by 25 percent on goods from Mexico and Canada has sparked serious concern among economists, as both countries are among the U.S.'s largest trade partners. Professor Trevor Tombe, an economics expert at the University of Calgary, warned that Canada is likely to retaliate with its own set of trade measures if these tariffs are put in place. What’s more, Tombe suggests that this retaliation would likely involve a coordinated effort with other nations, leading to even greater economic damage.
The implications of such tariff policies are far-reaching. Tombe points out that even a relatively small 10 percent tariff on imports could have severe consequences for both the U.S. and Canadian economies. In his research, he found that retaliation by other countries could cause U.S. incomes to fall by nearly 1 percent. This is a significant blow to the economy—equivalent to approximately $800 per person in the U.S.
So, what does this mean for the average American? In short, tariffs could lead to higher prices on imported goods, which in turn would raise costs for consumers. The more expensive it is to import goods, the more expensive those goods will be when they hit store shelves. Essentially, consumers would feel the pinch of these tariffs in their everyday purchases, from groceries to electronics.
The Economic Effects of Tariffs
Professor Peter Loge, an expert in public affairs at George Washington University, offers further insight into the potential economic consequences of tariffs. He explains that tariffs are essentially a tax on imported goods, making products from other countries more expensive for U.S. consumers. While the goal of tariffs is often to encourage domestic production and reduce reliance on foreign goods, the reality is that they tend to raise prices for consumers. Loge points out that while tariffs may encourage more domestic production, the goods produced in the U.S. are often more expensive than their imported counterparts. As a result, U.S. consumers would end up paying more for products, whether they are made in the U.S. or abroad.
The problem with tariffs, as Loge explains, is that they create a ripple effect throughout the economy. Increased costs for businesses lead to increased costs for consumers, and the broader economic impact could be felt for years. While tariffs might seem like a straightforward way to protect American industries, they often lead to unintended consequences, including higher inflation.
What the Experts Are Saying About Inflation in 2025
As we look ahead to 2025, many economists are anticipating a relatively strong economy, but inflation could still pose a challenge. According to Professor Loge, inflation in the U.S. is likely to remain at around 2 percent, which is considered a healthy level for the economy. However, the proposed tariff hikes and changes to government spending could push inflation higher, especially if other nations retaliate against U.S. trade policies.
Loge suggests that the most prudent course of action would be for the new administration to avoid drastic changes that could upset the current economic balance. While it's impossible to predict the future with certainty, the key to managing inflation will be striking the right balance between economic growth and price stability. In other words, policymakers will need to find ways to foster a strong economy without pushing inflation to unsustainable levels.
What’s Next for the U.S. Economy?
As Trump prepares to take office in late January, his economic agenda will begin to take shape. If all goes according to plan, financier Scott Bessent will join his Cabinet as treasury secretary, a move that could signal further changes to U.S. economic policy. Whether these changes will have a positive or negative effect on inflation remains to be seen, but one thing is clear: the economic landscape is about to undergo some significant shifts.
In conclusion, inflation in 2025 is a topic of intense debate, and the policies of the incoming administration will play a crucial role in shaping the economic future. As experts weigh in on the potential effects of tariffs and other economic policies, it’s clear that the road ahead will be complex. For Americans, it’s a waiting game to see how the new administration will navigate the challenges of inflation and economic growth in the years to come. Keep an eye on these developments, as they will likely have a profound impact on your wallet in the near future.
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