After a pandemic-induced recession and several years of high inflation, many Americans are pessimistic about both their own personal finances and the overall economy. Unfortunately, the incoming Trump administration will likely bring more economic turbulence, with sweeping policy promises that could cause economic growth and employment to drop, while reigniting high inflation. Americans without robust savings are especially vulnerable in such turbulent times.
One of the most unnecessary contributors to inflation over the past four years was an excess of deficit-financed stimulus spending. But Trump and Congressional Republicans appear likely to repeat the mistake of their predecessors by extending and possibly expanding upon the tax cuts they enacted in Trump’s first term — which would cost more than $4 trillion over 10 years — without offsetting most of the cost. Furthermore, while the tax cuts’ largest benefits will disproportionately flow to wealthy Americans, the inflation they could cause would be borne primarily by working-class Americans who consume more of their household income than their upper-income peers.
As both a candidate and as president-elect, Trump has promised several other policy shifts that would wreak havoc on American households’ financial stability. For example, Trump promised throughout his campaign to impose a 10-20% tariff on every imported good, with at least a 60% tariff on Chinese goods. More recently, Trump also threatened a 25% tariff on Canada and Mexico, two of our largest trade partners. If implemented, these proposals would lower most Americans’ incomes by thousands of dollars, as importers pass the cost onto consumers through higher prices for everyday items.
If enacted, these policies and the many others Trump has advocated for, such as mass deportations, would send shockwaves through the economy. One prediction from the Peterson Institute for International Economics suggests severe consequences for Americans: Prices could skyrocket as much as 28% above the baseline prediction, gross domestic product could be $6.4 trillion lower, and employment would fall in exporting industries such as agriculture and manufacturing. While other estimates may be smaller, they all point to disastrous consequences for American households if Trump succeeds in enacting the economic agenda he campaigned on.
Households without savings to rely upon will be especially vulnerable to these economic disruptions. Emergency savings can not only provide a crucial financial cushion during unexpected events such as job loss but can also reduce reliance upon debt when a household’s costs rise faster than its income. Yet the past few years of inflation have taken a toll on American households, with 65% of adults in a Federal Reserve survey published earlier this year saying price increases have worsened their financial situation. One consequence of higher prices is that it becomes harder to adequately save for emergencies: According to the same survey, 46% of Americans surveyed did not have emergency savings to cover three months of expenses, up from 41% in 2021. Another recent survey by Blackrock found that more than one in four Americans lack any form of easily accessible savings to draw from during a crisis.
Donald Trump’s voting base is especially at risk: Blackrock’s survey found that 36% of rural households, which backed Trump by a 28-point margin, had no form of emergency savings — one of the highest of any demographic group. But these communities will also be among the hardest hit by Trump’s economic policies: The trade wars caused by his across-the-board tariffs will not only raise the prices they pay on consumer goods, but hit export-reliant industries that are important for rural economies, such as agriculture. As other countries respond with retaliatory tariffs, the industry will suffer as American products become substantially less competitive overseas.
Ideally, policymakers should avoid pursuing policies that will cause economic uncertainty or chaos. But in any case, they should pursue policies that promote financial capability to help vulnerable households weather whatever turbulent times lie ahead. PPI will be highlighting some potential policies that could advance these objectives in the next year.
