Economics

Trump’s economic scorecard: pass or fail?

The president hopes Americans focus on his economic record but it is nothing to celebrate

November 03, 2020
USA TODAY Network/SIPA USA/PA Images
USA TODAY Network/SIPA USA/PA Images

Americans voting in the presidential election are passing judgment on many things. The one that Donald Trump has long wanted them to focus on is his handling of the economy over the past four years. Opinion polls have suggested he is right to see this as his strong card even though the pandemic has wreaked so much economic damage. But what will be the verdict of historians?

A starting point is that there is no such thing as “Trumponomics,” a term that suggests a coherent economic rationale. To the extent it means anything, it is a disorderly medley of populist and nationalist instincts defined as much by what Trump is against as what he is for. At home that has brought deregulation, especially of environmental standards, and a readiness to take risks with the public finances. Abroad, it has meant abandoning America’s traditional role as the anchor of a rules-based international economic order through trade wars and the undermining of the World Trade Organisation.

On Trump’s “to-do” list the president can tick various successes, by his reckoning. A hallmark measure at home was the big package of tax cuts that he pushed through in 2017. This had some merits, especially in lowering America’s overly high corporate tax rate (reducing the top rate from 35 per cent to a single rate of 21 per cent). But it especially rewarded the better-off and worsened the long-term outlook for the public finances, increasing the budget deficit by $1.5 trillion over ten years according to estimates at the time. The giveaways provided a fiscal stimulus to the economy but not one that it needed, since growth was already respectable.

Trump has also reset America’s economic relationship with China in a way that looks set to endure. The era of collaboration when US firms routinely outsourced production to low-cost Chinese manufacturers has ended. Supply chains are starting to be reorganised as American businesses seek to reduce their reliance on a country now regarded as a technological rival.

But if Trump has undoubtedly left his mark, he has also failed in much of what he has sought to achieve. At home for example, the coal industry he pledged in 2016 to revive has continued to decline despite deregulatory support, showing that there is no point in propping up declining sectors of the economy. The president’s trade wars have been counterproductive, hurting producers such as American farmers as well as consumers.

Trump’s favourite measure for evaluating his economic prowess is the stock market. You have only to consider the disconnect between American share prices and the pandemic-afflicted economy this year to see what a misconceived approach this is. But even on this flawed yardstick there is little to show between Trump and Barack Obama in his second term (measured between elections in early November rather than inaugurations the following January). At the end of October, the S&P 500 index of American equities was 54 per cent higher than four years ago. In the preceding four years it rose by 51 per cent.

A superior gauge is GDP (despite its own shortcomings). Setting this year aside because of the impact of the pandemic, GDP grew by 2.3 per cent in 2017, 3 per cent in 2018 and 2.2 per cent in 2019. That’s an average of 2.5 per cent a year, barely above that achieved in Obama’s second term (2.3 per cent in 2013-16) despite the temporary fillip to growth under Trump from the big tax cuts.

Another important metric is unemployment, which fell from 4.7 per cent of the workforce at the end of 2016 to 3.5 per cent three years later. That the jobless rate could fall to such a low level, last recorded at the end of the 1960s, is remarkable. However, the improvement in the labour market was less than in Obama’s second term, when unemployment fell by over three percentage points from 8 per cent at the start of 2013.

The broader point is that Trump inherited an economy that had made a sustained recovery after the shock of the financial crisis that came to a head in late 2008. The tax cuts pepped up growth in 2018, but that impetus then faded. The uncertainty and frictions generated by Trump’s tariff wars contributed to a marked slowdown in global trade from which the US was not immune, as American exports stagnated in 2019 after growing in real terms by almost 4 per cent in 2017 and 3 per cent in 2018.

What Trump has signally failed to do is improve the supply side of the economy. At the end of last year Federal Reserve policymakers envisaged longer-run GDP growth of between 1.8 and 2 per cent annually. That central outlook was unchanged from what they had expected in December 2016. It is far removed from the growth of 3 per cent a year chalked up in the two decades before the financial crisis (between 1987 and 2007).

Last but not least, Trump has undermined the American economy this year by mishandling the coronavirus crisis. He has upheld the false choice between health and wealth, even though it is clear that the only secure base for a sustainable economic recovery is to get the epidemic under control. Although GDP bounced back strongly in the third quarter of this year, that still left output 3.5 per cent lower than its pre-pandemic level in late 2019. After shooting up to a peak of 14.7 per cent in April the unemployment rate has since fallen, but stood at 7.9 per cent in September. And, as infections surge again in America, the outlook for the economy as well as public health over the next few months is getting bleaker.

Trump presents himself as the friend of the economy but if anything he has been its foe, by forfeiting American economic leadership and picking fights over trade. The good things that happened on his watch before the pandemic—continuing growth and low unemployment—had little to do with him. Historians will score a pass for the economy but a fail for Trump’s economic policies.