Personal Finance
Here’s what President-elect Trump’s tariff plan may mean for your wallet
Donald Trump speaks at a rally on Nov. 5, 2024 in Grand Rapids, Michigan.
Scott Olson | Getty Images News | Getty Images
President-elect Donald Trump won Tuesday’s presidential election partly by addressing Americans’ economic anxieties over higher prices.
Nearly half of all voters said they were worse off financially than they were four years ago, the highest level in any election since 2008, according to an NBC News exit poll.
But a cornerstone of Trump’s economic policy — sweeping new tariffs on imported goods — would likely exacerbate the very Biden-era inflation Trump lambasted on the campaign trail, according to economists.
There’s still much uncertainty around how and when such tariffs might be implemented. If they were to take effect, they would likely raise prices for American consumers and disproportionately hurt lower earners, economists said.
The typical U.S. household would pay several thousand more dollars each year on clothing, furniture, appliances and other goods, estimates suggest.
“It’s bad for consumers,” said Mark Zandi, chief economist at Moody’s. “It’s a tax on consumers in the form of higher prices for imported goods.”
“It’s inflationary,” he added.
He and other economists predict the proposed tariffs would also lead to job loss and slower economic growth, on a net basis.
The Trump campaign didn’t immediately respond to a request for comment from CNBC on the impact of tariffs or their scope.
How Trump’s tariff proposal might work
A tariff is a tax placed on imported goods.
Tariffs have been around for centuries. However, their importance as a source of government revenue has declined, especially among wealthy nations, according to Monica Morlacco, an international trade expert and assistant professor of economics at the University of Southern California.
Now, the U.S. largely uses tariffs as a protectionist policy to shield certain industries from foreign competition, according to the Brookings Institution, a think tank.
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Trump imposed some tariffs in his first term — on washing machines, solar panels, steel, aluminum and a range of Chinese goods, for example. The Biden administration kept many of those intact.
However, Trump’s proposals from the campaign trail are much broader, economists said.
He has floated a 10% or 20% universal tariff on all imports and a tariff of at least 60% on Chinese goods, for example. Last month, the president-elect suggested vehicles from Mexico have a tariff of 200% or more, and in September threatened to impose a similar amount on John Deere if the company were to shift some production from the U.S. to Mexico.
“To me, the most beautiful word in the dictionary is ‘tariff,'” Trump said at the Chicago Economic Club in October. “It’s my favorite word. It needs a public relations firm.”
How much tariffs cost consumers
A 20% worldwide tariff and a 60% levy on Chinese goods would raise costs by $3,000 in 2025 for the average U.S. household, according to an October analysis by the Tax Policy Center. Trump’s plan would reduce average after-tax incomes by almost 3%, according to the tax think tank.
Additionally, a 200% Mexico-vehicle tariff would increase household costs by an average $600, TPC said.
American consumers would lose $46 billion to $78 billion a year in spending power on apparel, toys, furniture, household appliances, footwear and travel goods, according to a National Retail Federation analysis published Monday.
“I feel pretty confident saying [tariffs] are a price-raising policy,” said Mike Pugliese, senior economist at Wells Fargo Economics. “The question is just the magnitude.”
The reason for these higher costs: Tariffs are paid by U.S. companies that import goods. The “vast majority” of that additional cost is passed on to American consumers, while only some of it is paid for by U.S. distributors and retailers or by foreign producers, said Zandi of Moody’s.
Philip Daniele, president and CEO of AutoZone, alluded to this dynamic in a recent earnings call.
“If we get tariffs, we will pass those tariff costs back to the consumer,” Daniele said in September.
The U.S. imported about $3.2 trillion of goods in 2022, for example, said Olivia Cross, a North America economist at Capital Economics. A back-of-the-envelope calculation suggests a 10% across-the-board tariff would be roughly equivalent to a $320 billion tax on consumers, Cross said.
Tariffs reduce economic growth and jobs
Of course, the financial fallout likely wouldn’t be quite that large, Cross said.
Trump’s plan could boost the strength of the U.S. dollar, and there may also be tariff exemptions for certain categories of goods or imports from certain countries, all of which would likely blunt the overall impact, Cross said.
A 20% universal tariff and 60% Chinese import tax would also generate about $4.5 trillion in net new revenue for the federal government over 10 years, according to the Tax Policy Center.
“The administration could take tariff revenue and redistribute to households via tax cuts in some form or another,” explained Pugliese of Wells Fargo.
Trump has proposed various tax breaks on the campaign trail. Additionally, tax cuts enacted by Trump in 2017 are due to expire next year, and tariff revenue may potentially be used to extend them, should Congress pass such legislation, economists said.
However, the typical U.S. household would still lose $2,600 a year from Trump’s tariff plan, even after accounting for an extension of the 2017 tax cuts, according to an analysis by the Peterson Institute for International Economics.
The U.S. economy would also likely suffer due to other tariff “cross currents,” Zandi said.
While U.S. companies that financially benefit from protectionist tariff policies may add jobs, the total economy would likely shed jobs on a net basis, Zandi said.
This is because countries on which the U.S. imposes tariffs would likely retaliate with their own tariffs on U.S. exports, hurting the bottom lines of domestic businesses that export goods, for example, Zandi said.
Higher prices for imported goods would likely also lead to lower consumer demand, weighing on business profits and perhaps leading to layoffs, he said.
In June, the Tax Foundation estimated Trump’s tariff plan would shrink U.S. employment by 684,000 full-time jobs and reduce its gross domestic product, a measure of economic output, by at least 0.8%.
Capital Economics expects the Trump administration would introduce tariffs — and a curb on immigration — in the second quarter of next year, the group said in a note Tuesday night. Together, those policies would cut Gross Domestic Product growth by about 1% from the second half of 2025 through the first half of 2026 and add 1 percentage point to inflation, it said.
Hobo_018 | E+ | Getty Images
U.S. stocks saw wild market swings on Monday as the tariff sell-off continued.
For some investors, it may be tempting to head for the exits rather than ride those ups and downs.
Yet investors who sell risk missing out on the upside.
“When there’s a bad sell-off, that bad sell-off is typically followed by a strong bounce back,” said Jack Manley, global market strategist at JPMorgan Asset Management.
“Given the nature of this sell-off, that likelihood for that bounce back, whenever it occurs, to be pretty concentrated and pretty powerful is that much higher,” Manley said.
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The market’s best days tend to closely follow the worst days, according to JPMorgan Asset Management’s research.
In all, seven of the market’s 10 best days occurred within two weeks of the 10 worst days, according to JPMorgan’s data spanning the past 20 years. For example, in 2020, markets saw their second-worst day of the year on March 12 at the onset of the Covid pandemic. The next day, the markets saw their second-best day of the year.
The cost of missing the market’s best days
Investors who stay the course fare much better over time, according to the JPMorgan research.
Take a $10,000 investment in the S&P 500 index.
If an investor put that sum in on Jan. 3, 2005, and left that money untouched until Dec. 31, 2024, they would have amassed $71,750, for a 10.4% annualized return over that time.
Yet if that same investor had sold their holdings — and therefore missed the market’s best days — they would have accumulated much less.
For the investor who put $10,000 in the S&P 500 in 2005, missing the 10 best market days would bring their portfolio value down from $71,750 had they stayed invested through the end of 2024 to $32,871, for a 6.1% return.
The more that investor moved in and out of the market, the more potential upside they would have lost. If they missed the market’s best 60 days between 2005 and 2025, their return would be -3.7% and their balance would be just $4,712 — a sum well below the $10,000 originally invested.
How investors can adjust their perspective
Yet while investors who stay the course stand to reap the biggest rewards, we’re wired to do the opposite, according to behavioral finance.
Big market drops can put investors in fight or flight mode, and selling out of the market can feel like running toward safety.
It helps for investors to adjust their perspective, according to Manley.
It wasn’t long ago that the S&P 500 was climbing to new all-time highs, reaching a new 5,000 milestone in February 2024, and then climbing to 6,000 for the first time in November 2024.
At some point, the index will again reach new all-time records.
However, investors tend to expect tomorrow to be worse than today, Manley said.
It would help for them to adjust their perspective, he said.
In 150 years of stock market history, there have been wars, natural disasters, acts of terror, financial crises, a global pandemic and more. Yet the market has always eventually recovered and climbed to new all-time highs.
“If that becomes what you’re looking at, kind of the light at the end of the tunnel, then it becomes a lot easier to stomach the day in, day out volatility,” Manley said.
Advisor: Ask yourself this one key question
When markets hit bottom at the onset of the Covid pandemic, Barry Glassman, a certified financial planner and the founder and president of Glassman Wealth Services, said he asked clients who wanted to cash out one question: “Two years from now, do you think the market is going to be higher than it is today?”
Universally, most said yes. Based on that answer, Glassman advised the clients to do nothing.
Today, the markets have not fallen as far as that Covid market drop. But the question on the two-year outlook — and the resulting response to generally stay put — is still relevant now, said Glassman, who is also a member of the CNBC FA Council.
It’s also important to consider the purpose for the money, he said. If a client in their 50s has money in retirement accounts, those are long-term dollars that over the next 10 to 15 years will likely outperform in stocks compared to other investment choices, he said.
For investors who want to reduce risk, it can make sense, he said. But that doesn’t mean cashing out completely.
“You don’t need to go to 0% stocks,” Glassman said. “That’s just not prudent.”
Seif Ibrahim / 500px | 500px | Getty Images
Tax-loss harvesting can be a ‘silver lining’
Stock market volatility often presents the chance to leverage a popular tax strategy, experts say.
“Tax-loss harvesting is the name of the game right now,” said certified financial planner Sean Lovison, founder of Philadelphia-area Purpose Built Financial Services.
The move involves selling your losing brokerage account assets to claim a loss. When you file your taxes for 2025, you can use those losses to offset other portfolio gains.
Once investment losses exceed profits, you can use the excess to reduce regular income by up to $3,000 per year. After that, you can carry additional losses forward into future years to offset capital gains or income.
“It’s looking for a silver lining on a pouring, rainy, cloudy day,” said Lovison, who is also a certified public accountant.
You can also use tax-loss harvesting to rebalance your portfolio, he added.
Weigh Roth conversions
You may consider so-called Roth individual retirement account conversions amid the stock market dip, according to certified financial planner Judy Brown at SC&H Group in the Washington, D.C., and Baltimore area.
Roth conversions transfer pretax or nondeductible IRA funds to a Roth IRA, which can start tax-free growth. The trade-off is that you’ll owe regular income taxes on the converted balance.
After transferring funds to a Roth account, it’s possible to capture tax-free growth when the stock market eventually rebounds and the assets recover, she explained.
“But it has to be done fast,” said Brown, who is also a certified public accountant.
Of course, you need to project how the additional income could impact your taxes for the year, experts say.
Roth IRA contributions ‘could be missed’
If you’re eager to build tax-free retirement savings, you can still make Roth IRA contributions for 2024 until the federal tax deadline on April 15. Investing now could also be a chance to “buy the dip” while asset prices are lower, experts say.
For 2024, you can contribute up to $7,000 if you’re under 50, or $8,000 if you’re 50 or older, assuming you have at least that much “earned income” from a job or self-employment. You also must meet the income requirements.
“That’s definitely an opportunity that could be missed,” said Lovison. “It’s one more task in the middle of everything that’s going on.”
Stock markets in the U.S. and around the globe have dropped since last week when President Donald Trump introduced tariffs on most imports. The sell-off is causing some Americans to rethink their financial investments, despite financial advisor recommendations to stay the course.
Money flowed in and out just 0.10% of 401(k) balances overall last week, according to data from Alight Solutions, which administers company 401(k) plans.
While small, the share is significant, Alight’s research director Rob Austin said in an email: “This is roughly four times average, because we typically see this level in a month.”
More than half, 53%, of the outflows in the week ending April 4 — $140 million — came from large-cap U.S. equities, he said. Nearly the same amount — 52%, or $138 million — went into stable value funds.
Alight data shows total 401(k) balances fell from $262 billion at the beginning of the week to $245 billion by the end of the day on Friday, a 7% decline on average.
About 70 million Americans participate in 401(k) plans, according to the Investment Company Institute.
The average 401(k) balance was $131,700 at the end of 2024 at Fidelity Investments, one of the nation’s largest retirement plan providers. A 7% decline in that account balance would amount to $9,219 in paper losses in just one week.
To weather a retirement savings squeeze, financial advisors say it’s best to stick to a strategy that reflects your ability to take risks both financially and emotionally. Here are three strategies that can help.
Settle on an investment strategy — and stick to it
Traders work on the floor of the New York Stock Exchange during morning trading on April 3, 2025.
Michael M. Santiago | Getty Images
An investment policy statement provides a framework for managing your portfolio, and helps you avoid making impulse decisions based on the news.
“I strongly believe in sticking to an investment policy statement that reflects my needs, and I tune out the rest of the noise,” said Carolyn McClanahan, a certified financial planner, physician and founder of Life Planning Partners in Jacksonville, Florida. “We are helping our clients do the same.”
Having a strategy can help you feel confident that when you do make changes, they suit your investment goals.
“It is perfectly fine to make some changes if needed. It also means having a discussion about the potential reduced upside [of doing so],” said CFP Lee Baker, the founder of Claris Financial Advisors in Atlanta.
Financial advisors say sticking your head in the sand can be a mistake.
“There are likely to be some tremendous buying opportunities in the wreckage,” Baker said, “but it requires both diligence and patience.”
McClanahan and Baker are both members of the CNBC Financial Advisor Council.
Consider your cash position
For many investors, building a cash cushion is top of mind. For example, when it comes to retirees or those planning to stop working soon, Baker said they might want to take “some risk off the table” and have enough cash “to sustain withdrawals for a year.”
Money market funds can be helpful in retirement and investment portfolios if you plan to retire in the next five years or are already retired, financial advisors and investment strategists say.
These so-called “cash equivalents” are highly liquid investments, and unlike money market accounts at banks and credit unions, these funds can be held in 401(k) plans and other qualified retirement plans. Top money market funds currently yield 4% or more, according to Bankrate.
Focus on the fundamentals
Even policy makers are uncertain what the economic impact will be from the tariff policy changes.
The Federal Reserve could move to drive interest rates lower if the economy slows, or adjust rates higher to address inflation concerns. But it’s not clear what will be needed.
“We’re going to need to wait and see how this plays out before we can start to make those adjustments,” Jerome Powell, Chairman of the Federal Reserve, said on Friday during remarks at the Society for the Advancement of Business Editing and Writing conference in Arlington, Virginia.
To help cope with the uncertainty, financial advisors recommend focusing on the fundamentals.
“If a trade war will reduce economic growth, what asset classes should you overweight in that environment? That’s different than changing your allocation because of a policy decision,” said CFP Ivory Johnson, founder of Delancey Wealth Management in Washington, D.C. Johnson is also a member of the CNBC FA Council. “Pay more attention to the data than the narrative.”
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