The US economy is expected to outshine its global peers, according to the University of California Los Angeles Anderson Forecast. However, potential tariff and deportation policies will put upward pressure on costs and downward pressure on consumption, leading to lower growth in gross domestic product. The forecast anticipates GDP growth dipping below 2% on a seasonally adjusted annual rate in the second half of 2025. It then projects GDP to partially recover by the end of 2026.

“In January 2025, US President-Elect Donald Trump returns to the White House with plans to implement several economic policies he promised during the 2024 campaign,” the report said.

“Among these policies are new or increased tariffs on the United States’ largest trading partners (China, Mexico and Canada), mass deportations, tax cuts and deregulation,” according to the report. “How these policies ultimately manifest is not necessarily clear, considering practical, legal and political constraints on implementation.”

While the uncertainties create forecast challenges, UCLA Anderson Forecast economists tried to minimize speculation by considering only policies that have been publicly discussed and are likeliest, but not certain, to occur.

“These policies include imposing 25% tariffs on all goods from Mexico and Canada and raising the tariffs on China by 10 percentage points — all expected to be announced early in 2025 and in effect by the end of the year,” according to the forecast. “Policies also include deporting up to 1 million undocumented immigrants annually and making permanent the Tax Cuts and Jobs Act of 2017.”

The report also cautioned that while these are the assumptions in the forecast, reality could be much different.

Impacts

Tariffs would be passed on, for the most part, in the form of higher prices, temporarily raising inflation in 2025 to just above 3%, according to the forecast.

A main result of mass deportations will be a rise in wages.

“The deportations will exacerbate the existing labor shortages, as construction and the food industry are hit particularly hard,” according to the forecast. “With the US economy already supporting near full-employment, and a dearth of legal residents who are willing to take on certain jobs, wages will need to rise to entice workers into accepting such positions.”