Many seniors are witnessing their Individual Retirement Account (IRA) and 401(k) balances decline more and more, apparently every day. President Donald Trump’s high tariffs are undoubtedly having a disastrous effect on the stock market, regardless of your opinion of them. Would tariffs even affect Social Security payments to retirees? Perhaps the answer is “yes.” Here are some potential effects of President Trump’s trade tussles on your upcoming Social Security cost-of-living adjustment (COLA).
This is how Trump’s new tariffs could impact beneficiaries’ Social Security COLA
In order to understand how the President’s tariffs may affect your next Social Security COLA, we first need to take a look at the formula that determines it. Any change to Social Security payments needed congressional legislation for decades after the program’s creation, but later, an automatic adjustment was added. The goal of this adjustment was to prevent inflation from reducing Social Security payouts. Given this objective, it is reasonable that the primary element utilized to determine the COLA would be inflation. Economists employ many inflation measures, but the one used by the Social Security Administration (SSA) is known as the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W1).
This inflation index measures price fluctuations for the majority of blue-collar workers in urban areas. The CPI-W is released every month by the United States Bureau of Labor Statistics. The SSA calculates the COLA using the difference (rounded to the nearest tenth of a percent) between the average CPI-W for the third quarter of this year and the average for the same time last year. Social Security benefits are not adjusted if the current year’s Q3 average CPI-W is lower compared to the same period last year. Remember that if and only if President Trump’s tariffs affect the CPI-W in the third quarter of 2025, they will affect your next Social Security COLA. Some people may believe that the nations that impose tariffs are responsible for paying them, but that’s not how tariffs operate. Rather, businesses that import goods from other nations are required to pay any applicable tariffs to the U.S. government. How those importers respond to the increased expenses is the key question.
Besides Social Security, Trump’s tariffs could impact the cost of American-made products
As a cost of doing business in the United States, some importers may be responsible for the majority of the duties. However, some might pass the increased expenses on to their clients, as imported goods will become more expensive. The next Social Security COLA might be larger than it would be otherwise if this results in a higher rate of inflation. Tariffs may even affect the cost of American-made goods. This can occur, for example, when parts utilized in those items are imported from nations with high tariffs. Another is if American businesses increase their pricing to profit from a situation where their overseas competitors’ prices are higher. If the president’s tariffs are maintained, many experts predict increased inflation.
Furthermore, Comerica Bank senior economist Bill Adams told CNBC that he believes tariffs will raise inflation by 2% this year, from 2.8% to 4.8%. In a recent interview with CBS News, Gregory Daco, EY’s senior economist, expected a less dramatic impact, with inflation rising by 1% to nearly 4%. Some retirees may find the prospect of a greater Social Security COLA appealing. However, older Americans’ price increases are sometimes not fully reflected in benefit modifications. COLAs may also be higher than expected. This could cause the Social Security trust funds to be depleted sooner than expected.
In the third quarter of this year, there are several possible outcomes in which inflation does not rise. As he did last week, the president has the option of lowering or halting the tariffs again. Federal judges could uphold a lawsuit claiming that President Trump’s tariffs violate the Constitution. According to some analysts, high tariffs would trigger a recession, which would dampen inflation. Higher Social Security COLAs are not yet something retirees should expect.
