According to a recent poll, 46% of Americans approve of the way Trump has handled the economy. People seem to believe that since jobs grew, unemployment came down, and the stock market and their 401k accounts rose, Trump must have done a good job. As a conservative, a Republican and a student of economics for over 40 years, I submit that these economic outcomes often happened in spite of Trump’s policies and that he mismanaged the economy to such an extent that he has sown significant long-term risks into our economic outlook. The principle drivers of the economy during Trump’s tenure have been four factors: deficit spending, low interest rates engineered by the Federal Reserve, a widening trade deficit and the pandemic.
The largest factor that stimulated the pre-pandemic economy was a $1.5 trillion tax cut. While most of us enjoy more money our pockets, despite promises that the tax cuts would pay for themselves, our pre-pandemic deficits more than doubled to over $1 trillion per year. Trump’s tax cuts provided a huge party for the American people with $1 trillion per year of borrowed money and people have cheered him since. Any fool can throw a huge party and spike the punch bowl with $1 trillion per year of borrowed money, but someday that debt will have to be repaid. Trump’s attempt to win accolades and ingratiate himself to voters has left our children and grandchildren with a very heavy debt load.
A second problem with the tax cuts is that they exacerbated income and wealth inequality. 83% of the tax cuts went to the top 1% income earners. Given that all of us will be responsible for paying for the debt incurred, and cuts in education and health services were used to offset some of the tax cuts, the cuts, in effect, took from the poor and gave to the rich. Income inequality is now at the highest level since the great depression.
The second driver of economic growth has been a sharp cut in short term interest rates. These interest rate cuts were engineered by the Federal Reserve, not the Trump Administration. These low rates fostered borrowing for housing, autos and education, and created trillions of dollars of wealth through housing price and stock price appreciation. Asset price increases made people feel wealthier, spend more and boosted economic growth. However, the Federal Reserve’s pumping $3 trillion dollars into the economy also pushed down CD yields and drove stock prices up to precariously high valuations.
While the Trump Administration would like us to believe that his trade negotiations boosted the economy, that simply isn’t true. Despite all the negotiations, our trade deficit with China went from $347 billion in 2016 to $346 billion in 2019. To maintain support for this, Trump gave US farmers $28 billion in additional subsidies, and US consumers had to pay $34 billion more for the goods purchased.
Furthermore, Trump’s abandonment of the TPP trade deal seriously damaged our ability to counter China’s economic and military expansion. We had banded together with eleven allies to counter China’s aggression, but Trump, during his fourth day in office, impetuously threw away our strongest hand. Given that military might and security are derivative of economic might, the consequences could not be more profound. For the sake of America and the free world it is imperative that we return to a multi-lateral approach toward dealing with China.
Trump’s tough trade dealings with other countries have also failed to bear fruit. In 2017, Trump’s first full year in office, our total trade deficit was $550 billion; last year it was $617 billion. Clearly, Trump’s efforts to threaten and bully the leaders of other countries has proven counterproductive.
Given the rise in our federal deficit, to $3.3 trillion this year alone, the value of the dollar has sunk by 9% since Trump’s inauguration. That means everything we buy from overseas costs that much more. Housing costs have also risen 8%, and groceries have risen by 9%. Given significantly lower yielding CDs, most Americans, especially retirees are clearly being financially squeezed.
Beyond all of the above, Trump’s mishandling of the pandemic has done tremendous damage to the economy. Trump’s downplaying of the virus and refusal to encourage people to wear a mask allowed the virus to spread and resulted in personal and economic losses and pain that are almost incalculable. Trump’s refusal to be clear about the precautions people must take to contain the virus resulted in GDP contracting 32% in the second quarter, or $2.1 trillion. 51 million jobs were lost, and even after the job gains of the last few months, we still have 4.7 million fewer jobs than when Trump was inaugurated.
For those who still believe Trump has handled the economy well and will be a good steward of our economic future, I most sincerely hope the facts above gives you reason to pause and reconsider. While many had hoped Trump would use his business acumen to propel the economy forward at a faster rate, the sad, tragic reality is that he has not only brought great economic hardship upon us, but dug us into a hole it will take years to dig out of and damaged our position on the world stage.