President Trump's New Tariff Plan Could Have These Longer-Term Impacts on Social Security

Source The Motley Fool

On April 2, during his "Liberation Day" address, President Donald Trump announced a wave of new tariffs that affected U.S. trade relations with more than 180 countries.

Trump's plan includes tariffs ranging from as low as 10% (the base rate for all non-Chinese companies) to 125% (for Chinese goods). The new tariff amounts have changed and are likely to change again, but as they stand, there's a lot that's altering the global trade landscape.

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Although the tariffs will directly affect imported goods and consumer prices, they also could have some longer-term impacts on Social Security. If you're currently receiving or will receive Social Security benefits soon, here's what you should know.

U.S. Capitol building overlaid with Social Security cards and $100 bills.

Image source: Getty Images.

The cost-of-living adjustment could be a double-edged sword

One expected result of the new tariffs is that prices will increase. Some companies may choose to absorb the higher costs, but many will likely pass them on to consumers. Higher prices, or inflation, affects Social Security's annual cost-of-living adjustment (COLA).

The program's annual COLA is intended to help offset the effects of rising prices. The idea is that because Social Security recipients get a fixed amount, a COLA would help preserve retirees' purchasing power.

To determine the COLA, Social Security uses the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). It compares CPI-W data from the the past year's calendar third quarter to the current year's third quarter, and sets the COLA accordingly.

For example, if the third-quarter CPI-W data for 2025 comes in 5% higher than the 2024 number, Social Security recipients would receive a 5% increase on their benefits beginning in January 2026.

Assuming the new tariffs cause accelerating inflation, as many expect, the COLA heading into 2026 could be higher than expected. Of course, higher benefits are good for retirees, but there's also a chance that the increase won't keep up with the inflated costs retirees may face.

Unemployment could put a strain on the Social Security system

Unfortunately, the chances of a recession have increased with the implementation of the new tariffs, and if it happens, it could take a toll on the Social Security Trust Fund.

Social Security is primarily funded through payroll taxes. The tax now is 12.4% of a worker's pay in total, with employers and employees each contributing 6.2%. If you're self-employed, you're responsible for the entire amount.

Recessions typically come with higher unemployment because businesses tend to lay off workers and cut back on hiring to account for reduced demand. If this happens, the number of people paying into the Social Security system will decrease, yet the number of people receiving benefits remains relatively the same (or even increases if people are forced to claim benefits earlier than expected).

The imbalance between money coming in and money going out could put a strain on a system that already has long-term funding problems. It's not something all current recipients have to worry about, but if you're going to receive Social Security in the future, it could affect you.

New tariffs may not be all bad for Social Security

To counter the point about unemployment putting a strain on the Social Security system, there is one potential positive. If the tariffs do create more domestic manufacturing (as intended), it could mean more jobs and more people paying into the trust fund.

We can't confidently predict that the new tariffs will lead to this, but if it does, the additional payroll revenue could help alleviate some of the strain the system is facing.

As it stands, there aren't many short-term positives to pull from the new tariffs regarding Social Security, but this could be one long-term silver lining.

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