Georgia Strong | United States Fellow
As American President Donald Trump’s first Presidential term comes to a close, his economic efforts can start to be fully evaluated. Broadly, Trump’s economic policy was greater employment for blue collar workers, and economic growth of 4 to 6 per cent. One of the first programs implemented by President Trump when he was elected was the corporate tax cut scheme. This move likely stimulated the US economy to some extent as gross domestic product (GDP) rose to 2.9 per cent for 2018. However, the long term economic benefits are wearing off as business investment has declined for the previous two quarters. By February 2020 President Trump was expected to increase the federal deficit by 74 per cent over 4 years.
To put Trump’s debt in context, the US’ annual budget deficit was expected to approximate 4.6 per cent of GDP for 2020, as calculated in January prior to the global economic downturn. Similarly, President Trump’s first three years in office all recorded a deficit exceeding 4 per cent of GDP. The only other time the US has partaken in sustained budget deficits of this magnitude is during World War II. A typical budget deficit averages 1.5 per cent of GDP when the economy exhibits relatively strong growth - as was the case in 2016 to 2019.
By accumulating significant debt at a time of growth, President Trump has burdened future taxpayers for decades to come. Instead of passing tax cuts to provide short-term stimulus, Trump could have invested in programs that yield long-term growth, such as infrastructure investments or reducing the cost of higher education. Instead, big corporations partook in stock buybacks and dividends as their tax rate was reduced from 35 per cent to 21 per cent. Meanwhile, households are still waiting for Trump to restructure federal income tax brackets from seven to three, as was promised during his 2016 election campaign.
Despite President Trump’s claims of the US economy being “the best it has ever been”, his overall economic impact is not dissimilar from that of his predecessor, Barack Obama. From 2014 to 2016, real gross domestic product grew at an average annual rate of 2.5 per cent. In Trump’s first three years, 2017 to 2019, real GDP expanded by an annual average of 2.6 per cent, according to the Bureau of Economic Analysis. Real GDP peaked under Trump at 2.9 per cent in 2018 following a huge tax cut for large corporations and the rich. This growth falls short of the 4 to 6 per cent growth he promised during the 2016 election campaign. It is, however, in line with the average growth rate experienced by the US since 2000.
Prior to 2020, the unemployment rate had been declining steadily since the previous high of 10 per cent unemployment in October 2009 at the height of the Global Financial Crisis. During President Trump’s term in office, the unemployment rate fell 1.2 per cent to a half-century record low of 3.5 per cent. At this time, the US economy was riding the long wave of economic expansion that began under President Barack Obama post the 2009 financial crisis. After peaking at 14.7 per cent in April, the unemployment rate declined to 6.7 per cent in November 2020. Although declining unemployment indicates the US economy is beginning to recover, 9.8 million Americans remain unemployed compared to February’s employment statistics. Monthly employment growth is also slowing, with September recording an additional 661,000 jobs - down from the 800,000 expected. November saw just 245,000 jobs created.
Throughout his presidency, Donald Trump has achieved some positive economic change. Median American household incomes have increased by 9 per cent during his presidency to USD $68,703. This is the result of a strong job market, and low unemployment. However, household income for 2020 is unlikely to also see an increase. Some families have seen an increase in their income due to stimulus initiatives such as a US $1,200 stimulus check and a $600 boost in weekly unemployment benefits. Those who are ineligible for these income support measures have struggled with lost income, unemployment or underemployment and are struggling to make ends meet.
One of the strongest growth features of the economy during the pandemic has been consumer spending. Retail sales numbers from early to mid 2020 indicated that the US’ economic recovery might resemble something of a V-shape, where consumption decreases and then increases again very quickly.
On December 28 President Trump signed the USD $2.3 billion COVID relief package. Included in this package is a USD $300 per week jobless benefit boost and a USD $600 direct stimulus payment to most Americans. This policy package guarantees the financial security of low income and vulnerable households and increases the disposable income of households. Unfortunately, the pandemic’s presence in the US will limit business and consumer confidence, and therefore spending, into 2021.
Despite promising to fix the economy, Trump’s record on the economy has seen mixed results, in part due to the impact of the pandemic but also due to his own policies. A Biden presidency is likely to look very different, with a focus on economic recovery and clean energy investment initiatives.
Georgia Strong is the United States Fellow for Young Australian's in International Affairs.