Was the Economy Better Under Trump? Lessons from the Past and What’s Next

Donald Trump repeatedly claimed that the economy under his first presidential term was ‘the greatest ever in American history.’ While this is not the case, many still argue that the U.S. economy outperformed during the period. So, was the economy better under Trump? This guide will provide an in-depth analysis of the economy between 2017 and 2021, insights from the given period, and potential indicators of what we can expect next.

What was the influence of Trump’s first term on the economy?

Donald Trump’s presidency between 2017 and 2021 was marked by characteristic economic policies (called ‘Trumponomics’) that had an impact on the market performance. These notably include:

• Protectionist trade policy, represented by the introduction of tariffs and the trade war with China;
• Corporate and individual tax cuts, represented by various legislation, such as The Tax Cuts and Jobs Act;
• Deregulation to reduce government interference and spending aimed at environmental, financial, and healthcare regulations, among others.

That said, the economy of the period was also subject to two factors out of the hands of President Trump:

• Trump took office at the peak of the longest economic growth in U.S. history;
• The COVID-19 pandemic plunged the expanding economy into a recession.

We’ll analyze both of these factors to better assess Trump’s influence on the economy at the time.

Economic policies during Trump’s first term

After Trump assumed the presidency for the first time, his administration embraced ‘neomercantilism,’ a form of anti-globalist conservative protectionism. This resulted in policies like trade tariffs, tax cuts, deregulation, and government spending reduction. Here are the main points of his economic policy:

1. Tax Cut and Jobs Act

The Trump administration’s efforts to cut taxes culminated in the Tax Cuts and Jobs Act (TCJA) of 2017, which aimed to stimulate economic growth and boost consumer spending.

The Act reduced the corporate tax rate from 35% to 21% and introduced sweeping individual tax cuts by restructuring individual income tax brackets. Furthermore, it introduced a 20% deduction for some pass-through business income and shifted to a territorial tax system to encourage businesses to return foreign profits to the U.S. territory.

Supporters of the policy state that these tax cuts helped the economy grow and increased corporate profits. However, its critics show that the benefits were distributed unevenly and heavily favored wealthy individuals and corporations.

2. Tariffs and trade policy

Another of Trump’s hallmark economic policies was the ‘America First’ approach to trade. 

His administration replaced the North American Free Trade Agreement (NAFTA) with the United States-Mexico-Canada Agreement (USMCA) and imposed tariffs on hundreds of billions of dollars worth of imports from China. Additionally, it imposed a 25% global steel tariff and a 10% global aluminum tariff to protect domestic industries and address national production and security.

The effects brought moderate benefits to specific industries but raised all costs for domestic consumers and increased global tensions, particularly with China, as Beijing introduced retaliatory tariffs. Experts are still debating its overall effect.

3. Deregulation

Lastly, the third prominent feature in Trump’s economic policy was deregulation, which aimed to remove ‘excessive government regulation’ and stimulate economic growth. 

A prominent example of these attempts was Executive Order 13771 (“Reducing Regulation and Controlling Regulatory Costs”), which required federal agencies to remove two existing regulations for every new one issued—furthermore, the cost of new regulations needed to be offset by savings from eliminating old ones. 

More broadly, Trump strived to eliminate environmental (The Clean Power Plan), financial regulations (The Dodd-Frank Act), healthcare (ObamaCare), and other regulations. Supporters claim this pro-business, anti-bureaucratic framework stimulated economic growth and reduced employment. Conversely, opponents argue the changes benefited corporations at the expense of public health, the environment, and consumer safety.

The effects of Trump’s economic policies

Was the economy better under Trump? The consensus over the effects of Trump’s economic policies is still under debate. That said, we can easily measure some of the results:

1. The economy expanded. The gross domestic product (GDP), the primary indicator of economic performance, grew around 2.5% per year on average until 2020. Tax cuts, deregulation, and increased consumer spending likely contributed to this growth;

2. Unemployment decreased. By late 2019, it was at a historic low of 3.5%, the lowest in half a century. However, experts argue that the falling unemployment rate continued the trend set by the Obama administration;

3. The stock market grew in value. It experienced significant gains, with the Dow Jones and S&P 500 showing record highs;

4. Trade policy gave mixed results. While new trade regulation benefited some industries and sectors and provided tariff revenue income, it also increased consumer goods prices, slowed economic growth, and raised global tensions. Ultimately, the first Trump administration widened the trade gap instead of closing it. 

External factors on the economy during Trump’s first presidency

Two main factors shaped the economy during Donald Trump’s first presidential term: the positive economic trend he inherited from the previous administration and the global recession caused by the COVID-19 pandemic.

In fact, Trump became president at the peak of the longest economic expansion streak in U.S. history, which began in June 2009 and lasted over ten years. As such, the third year of his term witnessed a 50-year low unemployment rate of 3.5% and record-high household income and overall wealth of Americans.

Record lows soon replaced record highs as the world succumbed to the global pandemic. The U.S. unemployment rate went from 3.5% in February 2020 to 14.7% in April 2020, which matched the levels of the Great Depression. Trump signed the Coronavirus Aid, Relief, and Economic Security Act (CARES) to tackle the recession, contributing to a $3.1 trillion budget deficit or nearly 14.9% of the annual GDP.

Ultimately, Trump is the only U.S. president in modern history to leave office with a smaller workforce than when he took office. Under Trump, the national debt increased by 39%, reaching $27.75 trillion and rendering false his promise to cut public spending, partly due to the recession brought by COVID-19.

Lessons from the past for the future forecast?

Did we reach any conclusive answer to whether the economy was better under Trump? Well, no, and for two reasons.

The first reason is that the president has little direct influence over the economy, as the market takes months, years, or even decades to respond to financial regulation and economic policy. More than four years in office is needed for a conclusive answer.

The second reason is that Trump’s first presidency was dominated by economic factors that overshadowed the role of his administration’s policies—the decade of economic growth and the recession caused by the pandemic.

However, there are solid indicators for the direction of the economy in Trump’s future term. He will likely pursue similar policies, but a tighter control of Congress will enable him to make even more impactful policies than before.

In other words, the U.S. economy will see more tariffs, fewer regulations, and fewer taxes, for better or worse.

If you’re interested in learning how politicians participate in and benefit from the stock market, we recommend using a tool like Finbold Signals. It allows you to track trading activities with real-time data and helps you devise more precise strategies that emulate the most successful Congressional stock traders. 

Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.

FAQs