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

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

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.

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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:

Trump economic plan.
Trumponomics: Trump’s economic plan. Source: finbold.com
  • 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.

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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.

Was the Economy Better Under Trump? Lessons from the Past and What’s Next: US economic growth since 2009.
U.S. economic growth since 2009. Source: U.S. Bureau of Economic Analysis/BBC

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.

Was the Economy Better Under Trump? Lessons from the Past and What’s Next: Consumer price index and 10-year moving average.
Consumer price index and 10-year moving average. Source: S&P Global.

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;
  1. 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;
  1. The stock market grew in value. It experienced significant gains, with the Dow Jones and S&P 500 showing record highs;
  1. 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.

Was the Economy Better Under Trump? Percentage of U.S. labor force not in work.
Percentage of U.S. labor force not in work. Source: U.S. Bureau of Labor Statistics/BBC

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.

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

FAQs

Was the economy better under Trump?

While the first three years of Trump’s first presidency witnessed several record highs, such as low unemployment and overall wealth, the COVID-19 pandemic caused an economic recession during his last year. Ultimately, the economy was much worse when Trump left office, partly due to the effects of the global pandemic.

When will Donald Trump officially become president?

Donald Trump will officially assume the presidency on January 20, 2025. 

How does Trump plan to fix the economy?

Trump’s plan to fix the economy can be described as protectionist or neomercantilist. It aims to protect domestic industries at the expense of free trade and decrease ‘excessive’ government influence by cutting spending and taxes.

What did Trump do for the working class?

Trump’s economic policy did little to benefit the working class except those working in specific sectors, such as domestic steel production. In fact, by leading to a rise in consumer goods prices, it did more harm than good for the American working class.

What is Trump's tariff plan?

Trump has repeatedly stated that he wants to introduce a 10% to 20% global tariff plan on all imports, which goes up to 25% or even 60% in some cases, such as Canada, Mexico, and China.

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