Unlock the White House Watch newsletter for free
Your guide to what Trump’s second term means for Washington, business and the world
Six months into his second term, Donald Trump has made fast progress in implementing his disruptive economic agenda. The US president has started to build a tariff wall around domestic manufacturers; customs revenue has already surpassed $100bn this year, and his aggressive negotiating strategy has yielded concessions from major trading partners, most recently Japan. Earlier this month, the commander-in-chief got his tax-cutting “big, beautiful bill” through Congress. The administration’s tough stance on illegal labourers also appears to be having its intended effect: reported attempts by individuals to cross the US southern border without authorisation have been slashed.
Ill-advised as much of the president’s deficit-raising “America First” programme may be, there is little significant economic damage to point to, so far. Growth, inflation and the jobs market are confounding the most dire forecasts. The S&P 500 is trading at a record high. However, the US economy is, showing resilience in spite of Trump’s agenda, not because of it, and the impact is only beginning to be felt.
Take the president’s protectionist plans. Inflation data for June showed a small tariff-related bump. But price growth remains tame considering that the US effective tariff rate is now around seven times higher than last year. There are mitigating reasons for this. Businesses are running down inventories that they built up ahead of the tariffs. As these are depleted, higher costs will increasingly be passed on to consumers. Trump’s broader suite of tariffs — including sectoral levies — are also yet to be implemented.
As for the stock market, it is a poor indicator of the health of the real economy. The S&P 500’s current strength is driven by a handful of dominant tech stocks and bullishness around artificial intelligence. Investors are also taking tariff threats less seriously after recent postponements. But pain can be seen in pockets of the business community. On Tuesday, automaker General Motors blamed tariffs — which it is absorbing rather than passing on to auto buyers — for a $1.1bn hit to its second-quarter profits.
The president has benefited, too from having inherited one of the strongest economies of any president since Jimmy Carter, based on real GDP growth, the unemployment rate and core inflation. But his agenda is eroding that economic cushion. The outlook for each of those metrics has worsened in his second term. High interest rates are also increasingly crimping the economy. Real consumer spending has fallen since December, private sector job creation — beyond healthcare and education — has been weak, and house prices are falling nationwide. The administration has increased pressure on US Federal Reserve chair Jay Powell to cut interest rates, but the central bank is holding back given the uncertainty around Trump’s plans.
The effects of other policies will also take time to affect households and businesses. For instance, the Penn Wharton Budget Model estimates that Trump’s budget bill will become a greater drag on US GDP over time, especially as the hit on low-income households from curbs on welfare starts to build. Economists also reckon the crackdown on illegal immigration and pressure on legal migrants will act as a long-term drain on labour supply.
The lack of widespread economic pain allows Trump to claim vindication for his agenda, even as his approval ratings drift downwards. His base remains largely intact, buoyed by his early wins. But the real test lies ahead. With his signature policies now largely in place, their full effects will increasingly ripple through the economy and chip away at America’s resilience (unless the president reverses course, which is always possible). The economy will over time carry the unmistakable imprint of Trump alone.
Leave a Reply