UH economic outlook shows Trump’s cuts, tariffs could put Hawaiʻi on track for recession

The University of Hawaiʻi Economic Research Organization’s 2025 first quarter forecast for Hawai‘i is bleak.

President Donald Trump’s sweeping federal funding cuts and firings along with his tariff plans put the state at risk for a recession during the next few years.

The economic research organization says those Trump Administration moves combined with mass deportations and other federal policies will impose significant drag on the economy thereafter.

Carl Bonham, executive director of University of Hawaiʻi Economic Research Organization, said Feb. 27 during a press conference that there’s little doubt the economy is going to slow, but whether it tips into recession is yet unknown.

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

The clearest near-term risk is federal layoffs, which could result in a loss of about 2,200 Hawaiʻi jobs, fully offsetting growth in construction and the lift from state tax cuts.

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

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

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

There have been reports of firings of U.S. Fish and Wildlife Agency personnel on Hawai‘i Island and Kaua‘i.

Additionally, grant funding for a wildfire mitigation project in Waikōloa Village in the South Kohala district on the Big Island — the fourth riskiest place for wildfires in Hawai‘i and Maui counties as well as the City and County of Honolulu according to Hawaiian Electric’s Hawaiian Electric’s Wildfire Safety Strategy — was rescinded by the Trump Administration.

Tariffs on materials and potential labor shortages are looming concerns.

The administration imposed an additional 10% tariff on Chinese imports and an anticipated 25% duty on steel and aluminum. Other tariff threats are also pending, including on goods from Canada and Mexico.

Bonham said that while some of the new tariffs aren’t yet in place, people selling supplies such as aluminum and steel are giving prices only valid for 3 weeks at a time.

Mass deportations, which apparently have yet to begin in earnest, would have disproportionate effects on agriculture and construction.

Taken as a whole should they materialize, these policies will raise business costs and consumer prices while slowing 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 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 comes from federal grants.

Bonham described the state budget as being in “pretty good shape.” Unfortunately though, University of Hawaiʻi Economic Research Organization doesn’t have the hard data to know exactly what’s coming.

“There’s a lot of uncertainty facing the [Hawaiʻi] 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.

According to preliminary statistics from the Hawaiʻi Department of Business, Economic Development and Tourism, there were 792,177 visitors to the Hawaiian Islands in January, a 3.8% increase from January last year.

Total visitor spending measured in nominal dollars was $1.89 billion in January, up 4.7% from January 2024.

Total visitor arrivals, however, still lag behind January 2019, before the COVID-19 pandemic, only recovering by 96.9% compared with January 2019, which saw 817,600 visitors come to the islands, or 3.1% more than this year.

Total nominal visitor spending increased 17.2% compared with January 2019, during which $1.62 billion, +17.2%).

Maui’s recovery from the Aug. 8, 2023, wildfires also remains slow.

A weakening economy along with higher costs and prices will force a modest pullback in 2026–27, despite any benefits from federal tax cuts this year. The Japanese market recovery will advance only very slowly, and recovery of other international markets will continue.

There is a risk that deteriorating global relations could hurt, however.

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

“Economic growth in Hawaiʻi will feel the adverse effects of federal policies over the next several years, pulling job growth to zero and real [gross domestic product] growth down to 1.6% this year,” says the University of Hawaiʻi Economic Research Organization first quarter forecast. “More extensive federal layoffs, tariffs or deportations could well result in a Hawaiʻi recession and undermine long-term growth prospects.”

You can read the full forecast and its insights online.