UH Economic Research Organization says Trump’s cuts, tariffs could hurt Hawaiʻi’s economy

Hawai‘i is facing the risk of an economic downturn due to the sweeping federal funding cuts and firings imposed by President Donald Trump since he took office on Jan. 20, according to the University of Hawaiʻi Economic Research Organization.

While tax cuts may provide some stimulus this year, the new administration’s actions — including tariffs, mass deportations and spending cuts — will impose significant drag thereafter, UHERO states in its first quarter forecast for 2025.

“Together with other federal policies, this places the Hawaiʻi economy at risk of recession over the next few years,” UHERO stated in a news release.

Carl Bonham, executive director of UHERO, said during a press conference on Thursday that there’s little doubt the economy is going to slow, but whether it tips into recession is the real unknown.

“It’s not as bad as COVID, but it’s still pretty bad,” Bonham said.

The clearest near-term risk is federal layoffs, which could result in a loss of approximately 2,200 local jobs, fully offsetting growth in construction and the lift from local tax cuts, according to UHERO.

Bonham said the report shows zero job growth for 2025 and very little in 2026, however, the UHERO experts think some of those workers let go will be hired back.

Large-scale federal layoffs are now underway, initially targeting probationary workers, mostly those hired less than a year ago. Another 75,000 federal workers have accepted so-called “deferred resignations.”

Bonham said no hard data on the number of federal jobs lost or the number of federal grants stopped is available yet: “It’s all anecdotal.”

There have been reports of job loss with the U.S. Fish and Wildlife Agency on Hawai‘i Island and Kaua‘i. Additionally, a wildfire mitigation project in Waikōloa Village through a federal grant to Hawaiian Electric Company’s Community Benefits Plans program was rescinded by the Trump Administration.

Tariffs on materials and potential labor shortages are looming concerns. There has been progress in efforts to build more affordable housing, although overall home building rates remain lower than in past decades.

The administration has imposed new tariffs, including an additional 10% levy on Chinese imports and a pending 25% tariff on steel and aluminum. Further tariff threats loom, including with Canada and Mexico.

While the new tariffs aren’t in place yet, Bonham said people selling supplies like aluminum and steel are giving prices that only go out three weeks.

Mass deportations, which apparently have yet to begin in earnest, would have disproportionate effects on agriculture and construction, according to the release. Altogether, these policies, should they materialize, will raise business costs and consumer prices and slow the U.S. and global economies.

Even with the uncertainty, Bonham said there is optimism around the new administration and the U.S. economy is still performing at a high level.

U.S. consumer spending continues to drive the U.S. economy, expanding at a buoyant 4.2% annualized pace in the final quarter of last year. But business investment has been weaker, and hiring has slowed. While substantial disinflation gains have been made, some components have moved up in recent months, suggesting an extended pause in further rate cuts by the Federal Reserve.

The administration’s temporary halt to all contracting — stalled for now by the courts — would be damaging to the University of Hawai‘i and many charitable agencies. Cuts to federal programs and grants could also impact state funding.

Bonham said roughly 20% of the state budget is from federal grants.

Describing the State of Hawaiʻi’s budget as being in “pretty good shape,” Bonham said UHERO doesn’t have the hard data to know exactly what’s coming.

“There’s a lot of uncertainty facing the legislature as they go through the rest of this session and come up with a budget,” he said.

Visitor numbers are stable, but not growing. Maui’s recovery from the wildfires remains slow.

The U.S. market may benefit from federal tax cuts this year, but a weakening economy along with higher costs and prices will force a modest pullback in 2026–27. The Japanese market recovery will advance only very slowly. The recovery of other international markets will continue, although there is a risk that deteriorating global relations could hurt, the report said.

Strong construction activity from both public and private sector projects, including Maui’s rebuilding, is driving employment toward a peak of nearly 41,000 construction workers in 2026. This remains the primary bright spot in the local economy.

“Overall, economic growth in Hawaiʻi will feel the adverse effects of federal policies over the next several years, pulling job growth to zero and real GDP growth down to 1.6% this year,” the report said. “More extensive federal layoffs, tariffs or deportations could well result in a Hawaiʻi recession and undermine long-term growth prospects.”