When Donald J. Trump assumed the presidency in January 2017, he inherited an economy that, by many measures, was in solid shape. Unemployment was low, economic growth was moderate, and inflation, while still above the Federal Reserve’s target, had declined significantly from earlier years. Yet, the economic policies and rhetoric of the Trump administration have introduced a level of uncertainty that stands in stark contrast to the rosy picture he painted during his campaign. This tension between promise and reality has become a defining feature of the Trump era, particularly as his favored economic tool—tariffs—has clashed with his vow to create an unprecedented economic boom.
The Economy Trump Inherited
By the time Trump took office, the U.S. economy was in the midst of a steady recovery from the Great Recession of 2008-2009. The unemployment rate had fallen to 4.7%, down from a peak of 10% in 2009, and the economy had added jobs for 75 consecutive months. GDP growth, while not spectacular, was consistent, averaging around 2% annually. Inflation, as measured by the Consumer Price Index (CPI), had declined to 1.6% in 2016, below the Federal Reserve’s 2% target but stable enough to avoid deflationary pressures.
The stock market was also performing well, with the Dow Jones Industrial Average and S&P 500 reaching record highs in the months leading up to the 2016 election. Consumer confidence was strong, and the housing market had largely recovered from the collapse that triggered the financial crisis. In short, the economy Trump inherited was far from broken, though it was not without its challenges, including stagnant wage growth for many workers and lingering income inequality.
Trump’s Economic Promises
During his campaign, Trump made bold promises to revitalize the American economy. He pledged to create “millions and millions of new jobs,” boost middle-class incomes, and unleash an era of unprecedented prosperity. At a rally in October 2016, he declared, “We will begin a new era of soaring incomes. Skyrocketing wealth. Millions and millions of new jobs and a booming middle class. We are going to boom like we’ve never boomed before.”
Central to this vision was Trump’s commitment to renegotiating trade deals, bringing manufacturing jobs back to the U.S., and protecting American industries from what he described as unfair competition from abroad. He also promised significant tax cuts, deregulation, and infrastructure spending to stimulate growth. These policies, he argued, would unleash the full potential of the U.S. economy and deliver tangible benefits to American workers.
The Tariff Tool and Economic Uncertainty
One of Trump’s most consistent policy tools has been the use of tariffs. During his campaign, he vowed to impose tariffs on countries like China and Mexico to protect American industries and workers. True to his word, his administration has implemented a series of tariffs on billions of dollars’ worth of imports, targeting not only China but also allies like Canada, the European Union, and Mexico.
While tariffs have been a cornerstone of Trump’s economic strategy, they have also been a source of significant uncertainty. Economists have long warned that tariffs, while potentially beneficial to specific industries in the short term, can have broader negative effects on the economy. They raise costs for businesses that rely on imported materials, lead to higher prices for consumers, and can provoke retaliatory measures from trading partners, disrupting global supply chains and reducing export opportunities.
The impact of Trump’s tariffs has been felt across the economy. For example, the trade war with China has led to higher costs for American manufacturers, particularly in industries like agriculture, automotive, and technology. Farmers have been hit hard by retaliatory tariffs on U.S. agricultural exports, leading to a significant decline in farm income and prompting the administration to provide billions of dollars in subsidies to offset the losses.
The uncertainty created by the trade war has also weighed on business investment. Companies, unsure of how long the tariffs will remain in place or whether they will escalate, have delayed making long-term investments in equipment, facilities, and hiring. This hesitation has contributed to a slowdown in economic growth, with GDP growth decelerating from 2.9% in 2018 to 2.3% in 2019.
The Risk of Recession
The economic uncertainty generated by Trump’s tariffs has raised concerns about the possibility of a recession. In 2019, both JP Morgan and Goldman Sachs revised their economic forecasts, warning that the risk of a recession in the next year had increased due to the trade war. The manufacturing sector, in particular, has shown signs of weakness, with the Institute for Supply Management’s manufacturing index falling to its lowest level in a decade.
The Federal Reserve has also taken note of the risks posed by trade tensions. In 2019, the Fed cut interest rates three times, citing concerns about slowing global growth and the impact of trade policy uncertainty on the U.S. economy. While the labor market has remained strong, with unemployment falling to a 50-year low of 3.5% in late 2019, other indicators, such as weak business investment and declining manufacturing output, have raised red flags.
The Disconnect Between Rhetoric and Reality
The contrast between Trump’s rhetoric and the economic reality is striking. While the president has repeatedly touted the strength of the economy under his leadership, the data paints a more nuanced picture. The tax cuts passed in 2017 provided a short-term boost to growth and corporate profits, but the benefits have been unevenly distributed, with much of the gains going to corporations and high-income individuals rather than the middle-class workers Trump promised to help.
Similarly, while the stock market has reached new highs under Trump, this has done little to address the underlying issues of wage stagnation and income inequality. Many Americans have not seen their incomes rise significantly, and the cost of essentials like healthcare, housing, and education continues to outpace wage growth.
The trade war, meanwhile, has created winners and losers. While some industries, such as steel and aluminum, have benefited from tariffs, others, like agriculture and manufacturing, have suffered. The overall effect has been to inject uncertainty into the economy, undermining the very boom Trump promised to deliver.
Looking Ahead
As the 2020 election approaches, the state of the economy will be a central issue. Trump will likely point to low unemployment and stock market gains as evidence of his success, while critics will highlight the risks posed by trade tensions, slowing growth, and rising debt. The outcome of the election could have significant implications for economic policy, particularly on issues like trade, taxes, and regulation.
For now, the economy Trump inherited remains a story of promise and uncertainty. While the fundamentals are strong, the policies he has pursued have introduced new risks and challenges. Whether the U.S. economy will “boom like we’ve never boomed before,” as Trump promised, remains to be seen. What is clear is that the path to sustained, inclusive growth will require more than tariffs and tax cuts—it will demand a coherent strategy that addresses the long-term challenges facing American workers and businesses.
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