By Cynthia Wessendorf, Jennifer Ablan, and Ken Wills

At the end of one chaotic year and the threshold of another that could be equally turbulent, Hawaiʻi’s people, institutions and economy remain fairly resilient, though vulnerable to developments beyond its borders. The rapid, disorienting changes of 2025 show few signs of letting up, adding pressures on the local economy.

Nationally, trade has been disrupted, while the role of the federal government in education, health care, public health, disaster recovery, assisting the poor, scientific research, and clean energy initiatives is being dismantled.

In Hawaiʻi, at least 1,200 civilian federal employees have already left their jobs, millions of dollars in federal grants have been slashed or are at risk, and monthly premiums are rising on the Health Insurance Marketplace.

Troops have been sent into cities and ICE agents are running aggressive deportation campaigns, including in Hawaiʻi. The result is a declining job market nationally as inflationary pressures are accumulating, says Seth Colby, chief state economist at the Department of Business, Economic Development & Tourism. In the fall, the longest federal government shutdown in U.S. history led to cuts in food assistance and airline flights.

In Hawaiʻi, the shutdown intensified an existing economic slowdown, pushing tourism—the state’s most important economic engine—into a sputter. Visitor arrivals and real spending, adjusted for inflation, have fallen after a promising spring season, and many international visitors are staying away. The UH Economic Research Organization expects numbers to continue dropping significantly in 2026, though the state Department of Business, Economic Development & Tourism is more optimistic.

Together, tourism and federal spending represent almost a third of Hawaiʻi’s economy, so slowdowns and cuts hurt badly, cascading across sectors. “Federal spending is much broader than just its direct contribution in GDP. It’s also showing up in the hospitals. It’s showing up at the university. It’s showing up through grants to the state and grants to nonprofits,” explains Carl Bonham, executive director of UHERO.

“We’re really dependent on what happens in the U.S. economy right now, arguably more so than at any time that I’ve observed, because of cutbacks in federal spending, and also because roughly 80% of our visitors are from the U.S. right now,” he says. With consumer sentiment sinking, fewer people will want to splurge on a Hawaiʻi vacation.

TARIFF VERTIGO

Hiring, business planning and new investments have stalled across the country, including Hawaiʻi, amid concerns about tariffs and rising prices. While the impact so far hasn’t been as dramatic as predicted, researchers at Harvard Business School found a 5% increase for imported goods since March 2025, and 2.5% for domestic goods—and even larger price increases when compared to the pre-tariff deflationary trends of 2024.

About half of imports are materials and equipment used to manufacture goods, says Steven Bond-Smith, an assistant professor at UHERO and expert in regional economies, so tariffs drive up the cost of even locally produced goods and create a “headwind for future activities.” In mid-November, the average tariff rate was 18%, up from 2% in 2024. But the whiplash of add-ons, roll-backs, special deals and targeted punishments make it hard for many companies to plan or invest in production.

The U.S. Supreme Court was still deciding at press time whether the emergency powers used to impose tariffs were legal, but the Trump administration has promised to seek other mechanisms to keep them in place. Many large companies have been absorbing the levies while they wait to see what happens next, but small businesses with lean profit margins and negligible negotiating power can be facing extinction.

I spoke with a local jeweler who imports saltwater pearls from French Polynesia and other Pacific nations, as well as jewelry hardware and some freshwater pearls from China. The pieces are designed and assembled in Hawaiʻi and sold primarily to mainland stores and customers.

His monthly UPS tariff bill has quadrupled from about $5,000 a month to $20,000 a month since the trade wars began in April 2025, forcing him to slowly raise prices at the same time that customers pull back on spending. With three full-time employees and health insurance costs, there’s little left over. He says he’s prepared to close the business.

For all the self-inflicted damage to the economy, national and state-level GDP continues to inch upward. That growth, however, is largely a reflection of the 2024 economy showing up in data for the first half of 2025, according to Bonham. Others point to a massive buildout of data centers—much of it tied to the tech industry’s push into artificial intelligence—propping up the U.S. economy.

A FOCUS ON SUPPLY

Despite problems with Hawaiʻi’s aging condo stock, it’s often the only route into an otherwise prohibitively expensive market. For a glimpse of how unaffordable it is, consider this jump-scare data: the latest cost-of-housing index from the National Association of Home Builders and Wells Fargo found a typical family in urban Honolulu would need to allocate 73% of its pre-tax income to cover the mortgage payment of a median-priced home.

Exorbitant prices are nothing new on Oʻahu, where just 4% of land is zoned for urban housing and 0.3% for multi-family apartments and condos. The state also has some of the nation’s most stringent regulations blocking development, leaving it 64,490 housing units short, according to a 2024 study by the Hawaiʻi Housing Finance & Development Corporation.

Oʻahu has historically embraced suburban sprawl over a dense, walkable city with enough housing, at various prices, to accommodate everyone. But attitudes are shifting. Even the Honolulu Board of Realtors wants leaders to focus on supply, says Benn, as do a wide range of would-be homebuyers and city and state officials.

Gov. Josh Green told attendees of the Chamber of Commerce Hawaii’s cost-of-living summit in October that 10,000 new units in affordable housing projects are scheduled in the 2023-2026 timeframe, and another 64,000 units are in the pipeline. If the momentum holds, we may see giant cranes sweeping their arms across the skyline for years to come.

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