Former President Trump shows a table with proposed Non-Reciprocal Tariff Examples
Is the economy in a good state?
Inflation is cooling and the federal reserve is eyeing interest rate cuts, the stock market is rallying, unemployment is cooled. Yet, consumer sentiment remains low. Americans still struggle with high food prices, face difficulty purchasing homes and cars, and live paycheck-to-paycheck. As former President Donald Trump campaigns for another term, many Americans wonder if he can fix America’s seemingly struggling economy.
Tariff Policies: A Double-Edged Sword?
As with almost all economic policies, there is a good and a bad. Trump’s tariff policies have been a major talking point among economists. He has publicly proposed significant tariffs on major manufacturers such as China to protect American manufacturing jobs. While these tariffs may incentivize domestic production by making domestic goods relatively cheaper to foreign goods, it also risks raising costs for businesses and increasing prices for consumers. During his first term, Trump’s tariffs did not increase employment. According to the Tax Foundation, numerous scholarly studies found that both Trump’s and Biden’s tariffs reduced output and employment, ultimately having a negative impact on the US economy. This time, the proposed tariffs are ten times larger, which will ultimately be realized by the American consumer. Critics and economists alike agree that Trump’s tariffs are likely to worsen inflation, rather than alleviate it.
Will Tax Cuts Cool Inflation?
Trump has proposed tax cuts which include eliminating taxes on tips and reducing the corporate tax rate with the goal of stimulating economic growth. Earlier this year, Trump told a group of wealthy donors that he plans to cut their taxes. In his first term, Trump’s Tax Cuts and Jobs Act of 2017 provided major tax breaks to corporations and wealthy individuals, reducing the corporate income tax rate from 35% to 21%. This policy, while stimulating investment, also increased income inequality. By the end of his term, Trump had added more than $7 trillion to the national debt. The tax cuts for the wealthy simultaneously cut government revenue and exacerbated income inequality. This time, too, economists warn that his tax cuts would add trillions to the national debt and potentially spur inflation. Tax cuts are a form of expansionary fiscal policy, as when people can retain more of their income, they can then use it and reinvest it in the economy, thus stimulating economic activity. Along with economic activity, however, comes the upward inflationary pressure. The challenge lies in finding a balance between cutting taxes and managing the federal budget responsibly. However, the regressive nature of these tax cuts means that they are likely to do more harm than good for the American economy. In short, these tax cuts will likely only benefit only the rich.
Consumer Sentiment: The Trump Effect
One unique part of an economy is consumer sentiment. Even if an economy is doing well, social media or general sentiment can spread the idea that it isn’t. According to a Gallup poll, only 22% of Americans describe current U.S. economic conditions as “excellent” or “good” in May of 2024. Under Trump’s administration, many Americans may feel more confident about the economy. Opposed to Biden’s economy, where people save their money as people feel uncertain about their future financial security, a Trump-led economy is likely to create a sense of confidence. This sense of confidence can drive spending and investment, which are crucial for economic growth. The psychological impact of consumer confidence should not be underestimated. A Trump-led economy will certainly boost consumer sentiment and will aid in his efforts to improve the economy.
Trump’s Economic Legacy: A Mixed Bag
Trump’s first term saw some notable economic achievements. The GDP grew at a healthy clip, the stock market rallied, and unemployment rates hit a 50-year low of 3.5% in February 2020. However, the COVID-19 pandemic drastically changed the economic landscape. By April 2020, the unemployment rate skyrocketed to 14.7%, and despite recovering to 6.7% by December 2020, it remained above the level of 4.8% when Trump took office in 2016. Trump left office as the first president since Herbert Hoover to have fewer jobs in the country than when he entered.
Trump vs. Biden: What do the numbers say?
Inflation: Prices have risen 19.3% under Biden, almost 4 times faster than the 5% increase during the same period of Trump’s term.
Hiring: The US economy created 15.6 million jobs under Biden compared to job losses of 12.6 million under Trump.
National Debt: Biden added $4.3 trillion to the national debt so far, while Trump added $8.4 trillion during his full term.
Growth: The U.S. economy grew 8.4% under Biden, adjusted for inflation, versus 6.5% under Trump.
Stock Market: The S&P 500 index increased by 42.1% under Biden compared to 33.6% under Trump.
Consumer Sentiment: Confidence averaged nearly 28 points lower under Biden compared to Trump, reflecting higher inflation and economic uncertainty .
The Path Forward
Trump’s potential return to the presidency raises questions on how well he can lead the American economy. His proposed tariffs and tax cuts may provide short-term boosts but could also lead to higher inflation and increased national debt. Meanwhile, Biden's economic record shows strong job growth but is marred by high inflation and low consumer sentiment. While it is uncertain how effective Trump will be, there is one thing that is certain. The 2024 election will be a crucial decision point for the direction of the US economy.
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