Reflections on the economic record of the Trump Administration

It no doubt came as a shock to many (non-American) observers of the recent US election that almost 74 million Americans (more than 47% of those who voted) would have preferred Donald Trump to remain in the White House for another four years. Like many among America’s academic, media, and corporate elites, outside observers have long struggled to understand the reasons for Trump’s ongoing popularity with such a large proportion of the American population.

While much of Trump’s appeal to his so-called ‘base’ was attributable to so-called ‘cultural’ factors, Trump also explicitly sought to campaign on his economic record.

It is undoubtedly true that the US economy was performing very well, in most respects, during the first three-and-a-bit years of Trump’s term in office. In particular, the unemployment rate had fallen to 3½% – the lowest since 1969 – and among “prime age males” (a large source of support for Trump) it had fallen to 2¾%. Wages growth had begun to accelerate for the bottom 25% of wage-earners after more than 30 years of stagnation. And the poverty rate declined to its lowest level since records began in 1959 (with the poverty rate among Black people and Hispanics declining by half as much again, or more, as that for the entire population).

The real question is, did Trump’s policies have anything to do with that? Or were these and other outcomes the result of policies that were already in place when Trump came to office?

I am strongly inclined to the latter view. The “wind in America’s sails” during the first three-and-a-bit years of Trump’s term had been set during the Obama Administration and owed a lot to the very expansionary monetary policy settings put in place during and after the financial crisis by Fed Chairs Ben Bernanke and then Janet Yellen.

The unemployment rate was already down to 4.7% (lower than the 5% traditionally regarded as “full employment” in the US) when Trump was inaugurated in January 2017, and growth in wages had already begun to accelerate after bottoming at just under 2% in 2012. Much of the subsequent pick-up in wages, especially for the lower-paid, was the result of increases in minimum wages enacted in Democrat-run states – something which Republican-controlled states, and the Republican-controlled US Senate, refused to contemplate – see, for example here).

The poverty rate had already declined by as much (2.3 pc points) during Obama’s second term as it did during Trump’s first three years (it is unlikely to have dropped any further this year) — while the poverty rate among Blacks and Hispanics dropped by 5.7 and 6.2 pc points respectively between 2012 and 2016, cf. 3.1 and 3.7 pc points respectively between 2016 and 2019. In other words, in all three of these areas (employment, wages, and poverty) there was already considerable momentum behind the trends for which the Trump Administration has claimed credit.

Republicans would no doubt point to his big cuts in the corporate and top personal income tax rates at the end of 2017 – but there’s very little evidence that they boosted anything much except share buybacks (and, hence, share prices and executive remuneration). There was an element in the tax cut package which encouraged US multi-nationals to repatriate previously untaxed profits which they had been keeping offshore.

But there was no increase in business investment (the claimed major ‘dividend’ from corporate tax cuts) that can’t be explained by the surge in oil and gas investment associated with the explosive growth in ‘fracking’. Trump’s tax cuts, combined with fairly rapid growth in defence spending and spending on wasteful areas like farm subsidies, helped blow the US budget deficit out from US$582 billion in Obama’s last year in office to $1.022 trillion in 2019. Most economists would say that increasing the budget deficit, especially by as much as Trump did, when the economy is approaching ‘full capacity’ is not ‘good policy’ – and that in turn was a major factor in the Fed raising interest rates from 0.50% in December 2016 to 2.50% by July 2019 (and this under a Fed Chair whom Trump had appointed).

It’s perhaps worth noting that Trump had no other legislative achievements in the economic sphere. His supporters would no doubt point to de-regulation (which, to the extent it was achieved, was undertaken through Executive Orders rather than legislation); and, outside of the economic sphere, things like appointing more conservative judges to the Supreme Court and other courts (which owe more to Mitch McConnell than to Trump) and to getting US allies to spend more on their own defence (albeit, perhaps, at the expense of undermining confidence in the US’ commitment to its allies).

While it’s difficult in the US political system for an Administration to accumulate significant legislative achievements without majorities in both Houses of Congress (unless the Administration is both willing and able to make compromises with its political opponents in order to “get things done”), the Republicans did have majorities in both Houses for half of Trump’s term in office (cf. only one quarter of Reagan’s, the same proportion of Clinton’s and Obama’s terms that Democrats controlled both Houses of Congress).

Trump’s trade war with China did nothing to reduce the overall US trade deficit.  The US trade deficit was US$754 billion in 2016 (Obama’s last year) and it was US$858 billion in 2019. Take out the decline in the deficit on petroleum products (which had nothing to do with Trump’s trade policies) and the deficit widened even more, from US$675 billion in Obama’s last year to $840 billion in 2019.

The deficit with China narrowed by just US$2 billion – from US$347 billion in 2016 to $345 billion in 2019 – but, exactly as almost every economist predicted, was more than offset by increases in deficits with other countries, in particular other Asian countries and Canada.

Yes, revenue from tariffs more than doubled from US$34 billion in 2016 to US$74 billion in 2019.  But again, as every economist could tell you, that increased revenue wasn’t, in the end, extracted from Chinese exporters, it was extracted from American consumers and businesses who had to pay higher prices for the items that were subjected to Trump’s tariffs. Contrary to the widespread belief, tariffs aren’t something governments make foreigners pay to get their goods into the country: they are something that governments who are stupid enough to impose them make their own consumers pay in order to keep foreign goods out of the country.

According to the count maintained by Global Trade Alert  during Trump’s (almost) four years in office, the US has implemented 635 measures which have been harmful to trade (compared with 314 during the eight years of the Obama Administration) and only 149 which have been ‘trade liberalizing’ (compared with 95 under Obama). While China has been the most common target of these measures, countries which have long been US allies (including Canada, Germany, Italy, Mexico, Korea, Japan, France, the UK, and Australia) have also been adversely affected by numerous anti-trade policy actions of the Trump Administration. And almost all economies have been adversely affected by the Trump Administration’s policy of blocking appointments to the World Trade Organization’s dispute resolution tribunals. This will almost certainly impede Australia’s chances of obtaining redress for China’s vindictive actions towards Australian exporters from the WTO.

In addition to all of the foregoing, there are undoubtedly economic (as well as other) costs arising from the damage which Trump and his administration have done to the respect which the rest of the world used to have for American competence and capability (although to be fair, Trump didn’t start the decline in either of those, rather he has dramatically accelerated it); and the impact of his undermining of international institutions (which, again, to be fair, are in nearly all cases a long way from flawless) which have allowed other countries to exercise much greater (and in some cases more malign) influence over what those institutions do and say.

These will surely result in future historians adding Donald Trump’s name to those of James Buchanan and Warren Harding as among the United States’ worst presidents.


Saul Eslake worked as an economist in the Australian financial markets for more than 25 years, including as Chief Economist at McIntosh Securities (a stockbroking firm) in the late 1980s, Chief Economist (International) at National Mutual Funds Management in the early 1990s, as Chief Economist at the Australia & New Zealand Banking Group (ANZ) from 1995 to 2009, and as Chief Economist (Australia & New Zealand) for Bank of America Merrill Lynch from 2011 until June 2015.

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