Trump’s Only-Okay Economy

If you’ve been listening to Donald Trump and his critics over the past six months, they have found one thing they can agree on: Trump’s presidency would have a dramatic impact on the U.S. economy. Elected in part because of voters’ anger over high prices, Trump promised that he would “immediately bring prices down, starting on Day One.” He said that his deregulatory policies would encourage domestic oil producers to “drill, baby, drill,” and that lower energy prices would “bring down” the “prices of everything.” His tariffs, he said, would make the United States “rich as hell,” and “bring our country’s businesses back that left us,” boosting investment and employment. And his campaign of deporting undocumented immigrants would, he claimed, cut the price of housing and create new job opportunities for native-born Americans. A statement from the White House on the day Trump was inaugurated summed up his hyperbolic vision of future prosperity: “This will truly be the golden age of America.”

The rhetoric of Trump’s critics, particularly following his imposition of outrageously high global tariff rates on what he called “Liberation Day,” has matched his hyperbole—in the opposite direction. Trump’s tariffs were going to lead to “inevitable disaster” and “an economic catastrophe.” They were upending the global trading order and causing “an economic emergency.”

Five months into Trump’s presidency, though, something interesting has happened: nothing much. The economy has changed remarkably little. Unemployment is at 4.2 percent, right around where it’s been for the past year. Inflation has fallen mildly since Trump took office, but at 2.4 percent, it’s exactly where it was last September. The economy did shrink slightly in the first quarter of this year, but estimates suggest that it grew at an annualized rate of about 2.5 percent in the second quarter, which would put aggregate growth for the first half of the year in the 1 to 2 percent range, forecast to even out at roughly 1.4 percent for the year. That’s slower than last year’s 2.8 percent GDP-growth rate, but again, not a radical shift. Real wages and household income are both up year on year, at a slightly slower clip. And although the stock market has seen some sharp gyrations—booming over the past two months, after its post–Liberation Day plunge—it is now posting a modest rise of a little more than 1 percent since Inauguration Day.

In sum, the U.S. economy today looks pretty much like the one we had before Trump took over. He has brought more uncertainty and generated less trade—Trump’s tariffs, and other countries’ response to them, have reduced U.S. imports and exports—but the differences are not that dramatic. The economy as a whole is growing more slowly than it did last year, but seems to be chugging along at an adequate pace. Things are neither great nor terrible. The Trump economy is just okay—in large part because, in the short term, American businesses and consumers have simply kept doing what they were doing, even in the face of enormous uncertainty.

[David A. Graham: The TACO presidency]

One reason why Trump’s reelection has made so little difference is that his promises of ushering in a golden age never made much sense. The room for juicing the economy with a “drill, baby, drill” policy was strictly limited: U.S. energy production was already at an all-time high in 2024, and the price of oil can only drop so far before American fracking becomes unprofitable—which would reduce production and send oil prices back up. Although energy prices do matter to the economy, they’re far from the only driver—and Trump’s pledge to lower prices generally was always a fantasy. Presidents have little control over prices, which in any case almost never fall except during a recession. And Trump’s favorite policies—imposing tariffs and deporting undocumented immigrants—would be expected to drive prices up, not down. As for the rest of Trump’s economic agenda—extending his 2017 tax cuts, making various deregulatory moves, and cutting disfavored government programs such as USAID—none of it is likely to move the economic needle in any major way.

But if no golden age, why no catastrophe either? Trump’s tariff policies have not resulted in the economic disaster that so many pundits—myself included—expected, for the relatively straightforward reason that Trump backed off on his exorbitant rates on most of the world almost immediately. (He rolled most of them back to the universal 10 percent rate that he’s always wanted to charge.) He did keep a trade war with China going for almost six weeks but eventually moderated on that too, settling for a 30 percent increase on existing tariffs with China (down from his peak proclaimed rate of 145 percent). That trade barrier is not trivial—especially for American businesses that are dependent on Chinese imports—but it’s also not big enough to crash the U.S. economy.

Whether the Trump economy will stay okay is harder to divine, given that economic policy in this administration is determined by his whim. The Liberation Day tariff pause is scheduled to expire on Tuesday, which was supposedly the deadline for concluding 90 trade deals in 90 days (so far a grand total of two have been agreed, and one other “framework” has been announced), and Trump has made noises about potentially reverting back to the original sky-high tariffs for some countries. That would certainly be bad for the economy. But Trump has also suggested that he might merely extend the pause. So we could end up just muddling through.

[James Surowiecki: Wall Street blew it]

The administration is cranking up its sales pitch on the budget bill now before Congress, arguing that it will “supercharge” the economy. Trump’s Council of Economic Advisers, for instance, recently issued a report claiming that the bill—which will extend the 2017 tax cuts, eliminate most taxes on overtime and tips, and change accounting rules for business investment to make it easier for companies to write off investments—will boost economic growth by an extra 1 percent annually for the next four years and increase take-home pay for the average American household by as much as $13,300 over the long run. Those increases would be a dramatic improvement—but the chance that they happen is minimal. For all of the hype, the budget bill mostly keeps things as they are from a macroeconomic perspective. (The provisions that have gotten the most attention, such as cutting Medicaid, will have a big impact on individuals, but probably not a huge effect on the economy.)

Trump’s tax cuts—and the change in the expensing of investments—should help the economy grow marginally faster. But on the flip side, the budget bill is phasing out a host of tax credits and subsidies for renewable energy, which will slow investment in the sector and probably raise energy prices. And the Council of Economic Advisers’ forecast is, in any case, very much an outlier; the nonpartisan Congressional Budget Office estimates that the bill will boost GDP economic growth by a total of 0.5 percent over a decade, whereas the Yale Budget Lab sees a boost of just 0.2 percent that it estimates will last only three years. Meanwhile, Trump’s tariffs will be a slow but steady drag on the economy, by raising prices on imported goods. The effect of the administration’s policies also means that tourism is likely to take a significant hit.

What this adds up to is an economy that’s likely to be worse than it was (one reason Trump is agitating so fiercely for the Federal Reserve to cut interest rates) but not in an especially dramatic way. Trump’s policies—including his tariffs, his slashing of funding for scientific and medical research, and his war on renewable energy—will be bad for the fundamentals of the U.S. economy in the long term. But in the short term, it won’t be surprising if the economy remains … okay.

The problem for Trump is that just “okay” is not good enough for American voters, who were deeply unhappy with the state of the economy last year and are actually unhappier with it today. Consumer sentiment, as measured by both the University of Michigan and the Conference Board, is significantly more depressed than it was a year ago. Most Americans think a recession is somewhat or very likely to occur in the next year. And they’re unhappy with Trump as a result: Quinnipiac Poll found that only 40 percent of those surveyed approved of his handling of the economy. For Republicans in Congress looking toward the midterm elections in 2026, the prospect of being dragged down by their leader’s low approvals could become alarming.

“Things are fine” didn’t work as a message for Joe Biden. It isn’t likely to work for Trump either.