Personal Finance

Here’s what President-elect Trump’s tariff plan may mean for your wallet

Published

2 weeks ago

November 6, 2024

Business Finance News

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.

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“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.

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.”

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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.

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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.

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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.

Personal Finance

Top 10 S&P 500 stock winners since Election Day

Published

8 hours ago

November 22, 2024

Business Finance News

Stock traders on the floor of the New York Stock Exchange.

Michael M. Santiago | Getty Images News | Getty Images

Many large U.S. companies have seen their stocks swell since the presidential election.

The top 10 performing stocks in the S&P 500 index saw returns of 18% or more since Election Day, according to data provided by S&P Global Market Intelligence, which analyzed returns based on closing prices from Nov. 5 to Nov. 20.

Two companies — Axon Enterprise (AXON), which provides law-enforcement technology, and Tesla (TSLA), the electric-vehicle maker led by Elon Musk, an advisor to President-elect Donald Trump — saw their stocks gain more than 35%, according to S&P Global Market Intelligence.

By contrast, the S&P 500 gained about 2% over the same period.

‘Usually a bad idea’ to buy on short-term gain

Investors should be cautious about buying individual stocks based on short-term boosts, said Jeremy Goldberg, a certified financial planner, portfolio manager and research analyst at Professional Advisory Services, Inc., which ranked No. 37 on CNBC’s annual Financial Advisor 100 list.

“It’s usually a bad idea,” Goldberg said. “Momentum is a powerful force in the market, but relying solely on short-term price moves as an investment strategy is risky.”

Investors should understand what’s driving the movement and whether the factors pushing up a stock price are sustainable, Goldberg said.

Why did these stocks outperform?

Lofty stock returns were partly driven by Trump administration policy stances expected to benefit certain companies and industries, investment experts said.

Deregulation and a softer view toward mergers and acquisitions are two “key” themes driving bullish sentiment after Trump’s win, said Jacob Manoukian, head of U.S. investment strategy at J.P. Morgan Private Bank.

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Relying solely on short-term price moves as an investment strategy is risky.

Jeremy Goldberg

portfolio manager and research analyst at Professional Advisory Services, Inc.

Additionally, U.S. regulators will likely be much less stringent about allowing potential mergers during Trump’s second term, experts said.

Companies in the streaming ecosystem — like Warner Bros. Discovery (WBD), which owns the Max streaming service, and Disney+ owner The Walt Disney Co. (DIS) — may be benefactors of looser rules around consolidation, they said.

Rosy earnings and AI

For some stocks, outperformance was tied to rosy quarterly earnings results or guidance that some companies reported around or after Election Day, experts said.

Many such businesses cited artificial intelligence as a growth driver.

For example, Palantir Technologies (PLTR), cited “unprecedented” demand for its AI platform in the third quarter, helping deliver “exceptionally strong” earnings, Treasurer and CFO David Glazer told investors Nov. 4.

Likewise, Axon beat analysts’ estimates in its Nov. 7 earnings results, with officials touting its “AI era plan” and raising earnings guidance, Goldberg said.

Axon and Palantir stocks were up 38% and 22%, respectively, from Nov. 5 to Nov. 20, according to S&P Global Market Intelligence.

Some companies benefited from a combination of policy and earnings, experts said.

Rows of servers fill Data Hall B at Facebook’s Fort Worth Data Center in Texas.

Paul Moseley/Fort Worth Star-Telegram/Tribune News Service via Getty Images

Take Vistra Corp. (VST), an energy provider, for example. The company’s stock jumped 27% after Election Day.

Vistra is in talks with large data centers — or “hyperscalers” — in Texas, Pennsylvania and Ohio to build or upgrade gas and nuclear plants, Stacey Doré, Vistra’s chief strategy and sustainability officer, said on the company’s Q3 earnings call Nov. 7.

Tech companies are building more and more such data centers to fuel the AI revolution — and need to source increasing amounts of energy to run them.

The ‘Elon Musk premium’

And then there’s the Elon Musk factor.

Tesla’s stock got an “Elon Musk premium” from Trump’s victory, said Goldberg of Professional Advisory Services.

Musk, Tesla’s CEO, was one of Trump’s top campaign backers. Trump tapped him to co-lead a new Department of Government Efficiency. Shares of the electric-vehicle maker soared 14% the day after the election and almost 30% by week’s end.

President-elect Donald Trump and Elon Musk talk ring side during the UFC 309 event at Madison Square Garden on Nov. 16, 2024 in New York.

Chris Unger | Ufc | Getty Images

But Tesla stock has additional tailwinds, experts said.

For one, Trump wants to end a $7,500 federal tax credit for EVs. Scrapping that policy is expected to hurt Tesla’s EV rivals.

Tesla has also been developing technology for driverless vehicles. In Tesla’s recent earnings call, Musk said he’d use his influence in Trump’s administration to establish a “federal approval process for autonomous vehicles.”

Personal Finance

Student loan legal battles delay SAVE borrowers’ path to forgiveness

Published

9 hours ago

November 22, 2024

Business Finance News

Matthias Ritzmann | The Image Bank | Getty Images

With the Biden administration’s new student loan repayment plan is tied up in legal battles, millions of borrowers have had their monthly payments put on hold.

The break from the bills is likely a relief to the many federal student loan borrowers enrolled in the Saving on a Valuable Education plan, known as SAVE. But it may also be causing them anxiety over the fact that they won’t get credit on their timeline to debt forgiveness.

For example, those also enrolled in the Public Service Loan Forgiveness program, who are entitled to loan cancellation after 10 years, have seen their journey toward that relief halted during the forbearance.

“Borrowers are frustrated about the delay toward forgiveness,” said higher education expert Mark Kantrowitz. “They feel like they’ve been waiting for Godot.”

Here’s what borrowers enrolled in SAVE should know about the delay to debt cancellation.

Delay could stretch on for months

In October, the U.S. Department of Education said that roughly 8 million federal student loan borrowers will remain in an interest-free forbearance while the courts decide the fate of the SAVE plan.

A federal court issued an injunction earlier this year preventing the Education Department from implementing parts of the SAVE plan, which the Biden administration had described as the most affordable repayment plan in history. Under SAVE’s terms, many people expected to see their monthly bills cut in half.

The forbearance is supposed to help borrowers who were counting on those lower monthly bills. But unlike the Covid-era pause on federal student loan payments, this forbearance does not bring borrowers closer to debt forgiveness under an income-driven repayment plan or Public Service Loan Forgiveness.

Adding to borrowers’ annoyance is that “those enrolled in the SAVE Plan were not given the choice of forbearance,” said Elaine Rubin, director of corporate communications at Edvisors, which helps students navigate college costs and borrowing. If borrowers want to stay in SAVE, they can’t opt out of this pause.

Borrowers enrolled in PSLF are especially concerned, Kantrowitz said. That program requires borrowers to work in public service while they’re repaying their student loans.

“They have been working in a qualifying job, but aren’t making progress toward forgiveness,” he said. “Some borrowers are working a job they hate, but are sticking with it in the expectation of qualifying for forgiveness. Others are close to retirement and don’t want to have to work past their normal retirement age just to get the forgiveness.”

What borrowers can do

Despite the delay toward forgiveness, there are still a few good reasons for borrowers to stay enrolled in SAVE, experts say. During the forbearance, borrowers are excused from payments and interest on their debt does not accrue.

Keep in mind: Even if you make payments under SAVE during the forbearance, your loan servicer will just apply that money toward future payments owed once the pause ends, the Education Department says.

If you’re eager to be back on your way to debt cancellation, you have options.

You may be able switch into another income-driven repayment plan that is still available. Under that new plan, you may have to start making payments again. Yet if you earn under around $20,000 as a single person, your monthly payment could still be $0, and therefore you might not lose anything by switching, Kantrowitz said.

Changing plans might be especially appealing to those who are very close to crossing the finish line to debt forgiveness and just want to see their balance wiped away, experts said. (You’ll likely be placed in a processing forbearance for a period while your loan servicer makes that switch. During that time, you will get credit toward forgiveness.)

The Education Department is also offering those who’ve been working in public service for 10 years the chance to “buy back” certain months in their payment history. This allows borrowers to make payments to cover previous months for which they didn’t get credit. But to be eligible for the option, the purchased months need to bring you to the 120 payments required for loan forgiveness.

“The buyback option might be eliminated under the Trump administration,” Kantrowitz said. “So, if you want to use it, you should use it now.”

Personal Finance

The must-have gift of the season may be a ‘dupe’

Published

11 hours ago

November 22, 2024

Business Finance News

Caiaimage/Paul Bradbury | Caiaimage | Getty Images

‘Tis the season for giving… dupes?

Buying a dupe — short for duplicates — rose to the top of this year’s holiday wish-lists. A dupe gift is a gift that is a cheaper alternative to a more expensive, branded item. They were largely kept under the radar until recently because a “fake” was dubbed inferior to the real thing, but a lot has changed.

In some cases these brand imitators are now even preferred to their pricier counterparts.

This year, 79% of consumers said they would buy a dupe as a gift for their loved ones for the holidays, according to a survey of more than 1,000 shoppers by CouponCabin.

More than half — 51% — of those that the coupon site polled said dupes are better than the original.

Even when consumers can get the real thing, nearly 33% of adults intentionally purchased a dupe of a premium product at some point, a separate report by Morning Consult also found. The business intelligence company polled more than 2,000 adults in early October.

When is a dupe an appropriate gift?

Before you buy a dupe, think about who you’re shopping for, experts say.

For instance, some family members or friends might especially appreciate a dupe for what it is, said Ellyn Briggs, a brands analyst at Morning Consult.

“It’s kind of a badge of honor for young people to get a dupe,” she said.

On the other hand, you risk disappointing someone if they have been asking for a specific product for a while, said Melanie Lowe, CouponCabin’s savings expert.

If that is the case, consider the cost of the name-brand item and assess if it is within budget. The key is to know when to splurge or save, Lowe said.

“If you’re talking about a product that you’ll use daily… invest in the original,” Lowe said. “That purchase is usually worth it.”

Alternatively, “if it seems appropriate in the situation — if it is a more light-hearted gift — you can definitely go the dupe route,” she said.

‘It’s a dupe for a reason’

While some shoppers take pride in buying dupes, roughly 86% of shoppers have been disappointed by their purchase of a dupe, CouponCabin found.

“It’s a dupe for a reason,” said Lauren Beitelspacher, professor of marketing at Babson College. “We don’t know where it’s made, who is making it or the quality.”

Visa's View on the Holiday Shopping Season

“It’s not that all dupes are bad. But sometimes we are paying a premium because there is a quality difference — and we, as consumers, have to be more conscious of that,” Beitelspacher said.

If you want to shop for dupes, read and watch product reviews online to help determine the dupe’s quality — this is where social media can come in handy.

A majority, or 62%, of U.S. adults who use TikTok say they use the app for reviews or recommendations, according to a new study by the Pew Research Center. Others tap Instagram and Facebook for product research.

Shopping secondhand this season

Consumers should make the same value considerations when buying secondhand, which has also become more popular, even for gifting.

Three in four shoppers said that giving secondhand gifts has become more accepted over the past year — notching a 7% increase from the year before, according to the 2024 OfferUp recommerce report. OfferUp, an online marketplace for buying and selling new and used items, polled 1,500 adults in July.

The majority, or 83%, of shoppers are also open to receiving secondhand gifts this holiday season, the report found.

Shoppers have increasingly turned to resale for a number of reasons, including value, sustainability and as a means to secure hard-to-find luxury items. Because secondhand shopping is considered eco-friendly, it’s also become more socially acceptable. OfferUp’s report credited Generation Z for driving a shift in mindset.

“The stigma around secondhand gifting is rapidly diminishing,” said Todd Dunlap, OfferUp’s CEO.

However, the same buyer-beware mentality applies, cautioned Babson’s Beitelspacher, especially if you are ordering secondhand goods online. “You might not get what you want,” she said.

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