(taken from Wix's library)
Hello everyone! I have not written on this blog in a long time but I thought some of you may be interested to read about Mr. Trump’s potential impact on the USA economy, and perhaps beyond.
Before I give you some data and ideas on how the new president of the USA may impact that economy, let me lay out some important disclaimers (besides the fact that I am indeed not omniscient… I cannot predict the future):
First of all, I am a Canadian and as such I am not a democrat nor a republican. I am generally unimpressed (and somewhat uninterested) in the USA’s political system and squabbles. Their party affiliation and dynamics have little influence on my opinion. I additionally don't have a horse in this race. Whoever would have won would not have much of an impact on my life (if at all).
Second, I am an economist and I will be evaluating the possible impact of Mr. Trump’s government based on economics only. I am not well equipped to discuss the political implications, local and international, of such an election result.
To try to evaluate what Mr. Trump’s second presidency may look like, I also need to recognise the following:
(1) it seems at this moment that the republicans have the presidency, the senate, the supreme court, and likely the house of representatives
(2) Mr. Trump is not a typical republican and he does not have all (perhaps not even most) of this party's political support for most of the policies he may want to enact. The MAGA republicans (Mr. Trump's supporters within the institution) are more like a third party within a party. As such, President Trump may not be able to implement everything he has promised (like last time) and everything he would like to implement (again like last time).
(3) I will ‘briefly’ review Mr. Trump’s previous presidency and see if his time in office supports his 2024 election claims. As you all know, Mr. Trump likes to exaggerate about everything and anything but some of his claims were precise enough to check with real-world data. I will try to extrapolate the impact of his second presidency as if he would indeed implement them exactly as promised (or mentioned). That literal interpretation of the policies that were promised is most probably going to be significantly (and often substantially) different from what the real world will look like but I hope that gives you an idea of what to expect.
(4) Lastly, all the data I am presenting here is from the World Bank (unless stated otherwise). That data was submitted by the government of the USA and simply compiled by the World Bank. This source is very reliable and highly respected worldwide and is very unlikely to contain important biases. The data pertaining the years of Trump's presidency were submitted by agencies under Mr. Trump’s government. All that data is available for free to anyone that wishes to check any statement that any politician can make about any economic variable, just go verify yourself when a politician makes any sort of statement related to the economy. I tried to include as many years as I could but some datasets start later and/or end earlier than others, depending on the availability of that data.
A very helpful fact is that Mr. Trump was indeed the president of the United States of America before (45th president: 2016-2020) and he did implement policies similar to what he has promised this time around. As such, a lot of data is already available on what he ended up doing (while president) and how these policies affected the economy.
To put Mr. Trump’s current promises in context, here are some fun facts about his previous presidency:
Economic growth and size of the USA’s economy:
Mr. Trump likes to talk about size… the size of his crowds, the size of his hands, the size of his net worth, and how big the USA’s economy and its growth were under his presidency. Let’s see if Mr. Trump was indeed presiding over a roaring economy that was much better than his predecessor (Mr. Obama) and successor (Mr. Biden).
The following graph shows what we call Real Gross Domestic Product (real GDP), which shows all new production of the country in a given year.
As you can all see, the USA’s economy was not doing particularly well nor particularly badly under Mr. Trump. The general direction and the growth rate of the economy was strikingly similar to what was seen under Mr. Obama, his predecessor, as well as under Mr. Biden, his successor. All in all, It seems that presidents don’t have much of an impact on GDP, the level of production in the economy. Even by going back to older presidents, the growth rates are fairly similar to what we have just discussed.
You may have noticed that the economy dropped at the end of Mr. Bush’s presidency (right before Mr. Obama). This was, as you may recall, the Great Recession. We can hardly blame Mr. Bush for that as the structural problems that lead to the Great Recession had been in place for decades before 2008-2009.
Similarly, we can see a substantial decrease in economic activity at the end of Mr. Trump’s presidency. This was of course the Covid lockdowns. Again, I would say that we can hardly blame Mr. Trump for that economic hardship. Whatever your opinion on his response to the crisis, most economies around the world saw very similar decrease in their GDP.
Unemployment rate:
Mr. Trump likes to present himself as a president for the working class. During the most recent campaign, he said that the unemployment rate in the USA was the lowest it had been in decades (he exaggerated a bit on that side but let’s give him the benefit of the doubt).
The following graph shows the unemployment rate as a percentage of the total labour force, which is how we measure this variable.
As we can see on the graph, unemployment rates were very low under Mr. Trump, up until the Covid crisis. However, we can also see that unemployment rates had been decreasing substantially under Mr. Obama, right before Mr. Trump’s presidency. Once more, the president of the USA doesn’t have a great influence on that side of the economy. Market forces and long-run movements of structural economic variables push and pull the economy much more than any politician’s influence, up to a point. Mr. Trump’s policies were not “bad” enough nor “good” enough to have a detectable impact on the overall unemployment rate in the USA.
Net exports:
When running for president in 2015, Mr. Trump pledged to triple the number of jobs in the export industries and decrease imports from the rest of the world (particularly from China). We call “net exports” the reminding value of exports after removing imports. If that number (exports – imports) is positive, then the country exports more than it imports (vice-versa for negative net exports). Many politicians wrongfully believe that exports are a good thing for the economy while imports are a bad thing for it. That stems from the simple (but misleading) fact that selling exports brings money in the economy, through the balance of payments (current account), while buying imports sends money to other countries.
Let’s see if Mr. Trump’s trade war with China ended up increasing net exports after all:
Once more, there is no clear change in that variable associated with Mr. Trump being the president of the USA. Although he started the trade war with China in early 2018, there is, at best, only a slight change in the growth rate of net exports at that time. Net exports continue to fall under Mr. Trump, showing that the USA was importing increasingly more than exporting (it is also a negative number).
The situation under Mr. Biden is clearly different from his predecessor but that is obviously due to the Covid crisis. We will never know if net exports would have recovered under Mr. Biden (or Ms. Harris) as the economic shock of Covid recedes.
Inflation:
Mr. Trump complained tirelessly that inflation became too high after his presidency. Let’s see what the data shows.
As we can see here, the seeds of our latest hikes in inflation started under Mr. Trump’s administration. Although it may seem that his policies were a precursor to the historically high levels of inflation, that would be an unfair assessment. As mentioned before, presidents have very little control (and power) over the general economy. These waves of increases and decreases in inflation are mostly caused by external factors (oil shocks, wars, and the like), structural factors (of which the government may have a hand), and the Central Bank, in this case the Federal Reserve (the Fed).
If Mr. Trump had still been in power during that turbulent time following the Covid crisis, the exact same level of inflation would have almost certainly been seen (following the exact same timeline). I have, however, to mention that Mr. Trump’s policies on trade (his now infamous trade wars) and on immigration (deporting around 10 or 11 million immigrants) are very likely to lead to more inflation in the country. We may be looking at inflation rates of close to 6% or 8% during his late presidency if Mr. Trump implements his campaign promises.
Closing remarks
This article was much longer than I anticipated, thank you for sticking around. Although the results are very underwhelming, I’m more interested in the real-world than in sensational clickbait… as such I must conclude that Mr. Trump had, at best, a marginal impact on the general economy.
Some sectors of the economy suffered substantially, like the ones dependent on China’s imports (China retaliated against the USA by imposing their own tariffs), while some sectors gained substantially (mostly already very rich individuals). The same gains and losses are to be expected in a second Trump presidency.
Unless there are very important changes in the way the USA’s political system operates, Mr. Trump’s second presidency should not have much of an impact on the economy. There are possible dark clouds on the horizon though: (1) first and foremost would be a likely increase in inflation following trade and immigration changes proposed by Mr. Trump during the campaign (very similar to his previous time as president); (2) second would be his use of “Presidential Immunity”, he will most certainly test the boundaries of such powers; (3) third would be the (hopefully partial) implementation of Project 2025 or other similar programs. There’s always the chance of a full-on self-coup, which has happened in many other countries before, but I will let the political scientists and fortune-tellers figure out how likely that may be.
By my current assessment, I am not trying to diminish the potential impact Mr. Trump can have on the culture and social norms of the USA and the rest of the world. He has been a very influential force, I would say negatively so, on our societies and this is extremely likely to continue. My current assessment is only about his impact on Economic Outcomes, namely GDP, the Unemployment Rate, Net Exports, and Inflation.
Well, I hope you guys learned a few things while reading that article.
Take care everyone and have fun!
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