2025 Economic Thoughts & Predictions

🍐 This is an economic and economic policy article - not an article on politics. All the predictions here are based on economic principles and math, not partisan politics or anything else.

Additionally, please read the full article (including the links / additional resources) to fully get a grasp on the impacts here and before any knee jerk reactions!

The main two policies I’d like to examine are these:

• Large scale tariffs
• Mass deportation

Tariffs

While I have written about tariffs before, in a multipart series (which I am not done with, by the way) - I will summarize my thoughts.

🍐 For a more detailed set of thoughts on the situation that these will present, read through these (especially the second one):

1. Tariffs Part 1: An Introduction.
2. Tariffs Part 2: An Impossible Balance.

Of course, we have no clue if Trump will even attempt to actually do these tariffs he is threatening. We do know American companies and consumers are already preparing for the negative effects of them:

• ‘It’s going to be hard’: US firms race to get ahead of Trump tariffs
• Americans stocking up on foreign goods before Trump tariffs: ‘a sense of urgency’

As we enter into this next presidential term - unemployment stands at a very good 4.1%. Inflation is cooling overall, although trending upwards since The Federal Reserve has begun cutting interest rates.

As we know, American importers (and therefore, American consumers at the end of the day) pay tariffs on goods from other countries (and not other countries or their governments), and so any broad set of tariffs will cause a large upwards pressure on inflation.

This won’t only affect foreign goods, any significant tariffs will cause even goods made here more expensive, as over half of the things the United States imports are components of things we make here (intermediary good). Making our own supply chains less efficient will cause upwards price pressure in every single good regardless of where it is from.

Of course, with increased prices - comes reduced demand. The aggregate demand in an economy is a primary north star metric. As demand weakens, it is very possible to fall into a recession; how likely a recession is and how deep it is depends really how rough the tariffs are. Expect job losses if we add tariffs to imports at the levels that have been talked about.

Some additional points:

• There may be some shift of demands to American goods (although typically this effect is limited/non-existent)
  • The overall price of the American good is not going to be less than the foreign good was. If we could make the good for less and more efficiently, the market likely would already have been doing that.
  • Unless we increase our labor force, in order to reallocate labor to making these goods - they have to not be doing something else. We’d much rather labor creating computer chips, software, etc vs the lowest quality possible socks, for example.
• What is particularly scary is the thought of increased inflation and rising unemployment, which large scale tariffs will almost certainly cause.
  • This is the situation I predict in Tariffs Part 2: An Impossible Balance

Mass Deportation

There’s a lot with this topic that is not economics - morality especially, however I will not focus on these here and will primarily focus on the economic effects.

A primary economic argument for deporting people is that it will open up jobs. However, this is incorrect, and is a fallacy. The more new laborers that you add to an economy, the more total jobs the economy has in it.

This fallacy is called The Lump of Labor Fallacy. You can read more about it and how jobs are actually created and destroyed there.

In reality, the more laborers you take out of the economy - the less work there is for others.

Additional points:

• Do mass deportations cause job losses for American citizens?
  • Lots of good sources that are listed here that you should dig into
• Deportations reduce tax revenue
  • “Undocumented immigrants paid $96.7 billion in federal, state, and local taxes in 2022.” Source
• Removing this labor increases prices
  • Creating a labor shortage in the sectors primarily affected will raise prices and hamper production.

Ideally, I’d like to include details about a possible tax bill, however there’s just no detail on what it would actually be.

If it’s just another bill to cut taxes on the rich, that will increase the budget deficit even further. A profoundly bad idea if implemented but again we just have no idea.

Similarly, the new not-actually-a-real-department to reduce government spending - DOGE - will likely not have much success. It is going to be a large lift to get essentially any significant spending cuts through Congress, so I won’t even discuss the likely significant negative effects of cutting government spending at the moment. Musk has already reduced his estimate for what is likely to actually be cut — I’d look for that number to be cut to essentially 0.

By the way, there is already a department that does this function (GAO), a new duplicated “department” seems like the very government waste they claim to care about.

Overall

We are looking for a very rough year if these things are even half implemented — something, by the way, Elon Musk has already said: Elon Musk Warns Of ‘Hardship’ For Americans If Trump Puts Him In Charge Of Cutting $33 Trillion Debt.

I feel confident that this year, unless something else major counteracts these policies (again, if implemented):

• Unemployment is likely going to tick up over 5% (from 4.1% now).
• Inflation is going to grow substantially.
• Growth slows or the economy contracts.

This combination is called stagflation and, again, I covered it in my article Tariffs Part 2: An Impossible Balance. I believe The Federal Reserve may be forced to raise interest rates - depending how much inflation these policies cause - being forced to throw us further into a recession - either in late 2025 or early 2026.

Of course, no matter how disastrous these policies prove to be - it is likely the President will blame Biden.

Alternatively, the new administration could simply not implement these policies and not purposefully throw the economy into recession

I’d like to talk about some other things I see happening this year, such as effects of AI on the economy, so I may make a part 2 followup at some point soon.

I’ll be following up on these thoughts & predictions periodically, right or wrong, with more analysis as things happen.