Donald Trump's economic legacy: Policies, issues, and consequences

The economic policies of Donald Trump's administration included tax cuts for individuals and businesses, attempts to repeal the Affordable Care Act (“Obamacare”) program, trade protectionism, deregulation in the energy and financial sectors, and the response to the COVID-19 pandemic. During his presidency, taxes have declined but government spending has increased, leading to significant increases in the budget deficit and national debt. Despite promises to reduce the national debt, it increased by 39%, reaching 27.75 trillion dollars by the end of his term.

Trump embraced the economy at its historic growth stage that began under Obama, with record employment and household incomes. However, the COVID-19 pandemic abruptly halted that growth, triggering a recession in 2020. The unemployment rate reached 14.7%, comparable to the Great Depression. A 2 trillion dollars package (CARES) was enacted to combat the crisis, which mitigated the impact of the pandemic but also increased the budget deficit to 3.1 trillion dollars (14.9% of GDP), a record high since 1945. As a result of his presidency, the U.S. economy lost 3 million jobs, making Trump the only president of the modern era to end his term with a decline in employment.

Trump's trade policies, particularly tariffs on imports from China, and tax cuts largely favored the wealthiest segments of the population, increasing inequality. By the end of his first term, the number of citizens without health insurance had grown by 4.6 million. Despite stated promises to accelerate economic growth, actual performance (e.g., GDP growth rate and job creation) remained similar to or below the end of Obama's second term.

Tax Policy Results

Critics, including economists and analysts, have noted that Trump's tax cuts have contributed to rising inequality and increased the national debt, and the expected economic recovery has not been realized. The administration's policies have been described as neomercantilist, combining elements of the traditional Republican economic platform (tax cuts, social spending cuts) with populist measures such as protectionism.

Economists also noted the lack of effectiveness of the measures taken to stimulate the economy and Trump's exaggerations in describing his successes. For example, real GDP growth reached 2.9% in 2018, but that was similar to 2015, not the claimed 4-6%. Trump's claims of the “greatest economy in history” have been criticized as distorting reality, as many of the positive trends began long before he took office.

In the end, Trump's economic policies have delivered mixed results: some short-term gains (maintaining employment and income during the pandemic) but with long-term negative consequences in the form of rising debt, inequality, and budget deficits.

Trade

During Donald Trump's presidency, the North American Free Trade Agreement (NAFTA) was replaced by the United States-Mexico-Canada Agreement (USMCA), which entered into force on July 1, 2020, after two years of negotiations. The USMCA retains most of the provisions of NAFTA, making mostly minor and cosmetic changes that have resulted in limited economic impact. 

Studies, including those conducted by the International Monetary Fund (IMF) and the International Trade Commission, indicate that the agreement's impact on the U.S. economy, employment, and wages will be negligible. Once fully implemented, the USMCA was expected to increase U.S. GDP by only 0.35% and create about 176,000 jobs over six years, with no significant impact on overall economic growth.

Trade War with China

Between 2018 and early 2020, the trade war between the U.S. and China involved significant economic measures, including tariffs and currency adjustments. By January 7, 2020, the U.S. imposed tariffs on 16.8% of its imports (worth 395 billion dollars), targeting a variety of goods, with the largest share going to China. In response, U.S. trading partners imposed tariffs on 9.3% of U.S. exports (143 billion dollars), mostly on manufactured and agricultural goods.

China responded by devaluing its currency, the yuan, by 12% from early 2018 to late 2019, making its exports more competitive. This led to the US declaring China a “currency manipulator” in August 2019, which was rescinded in January 2020 during negotiations on the first phase of a trade deal.

Trump's policies helped narrow the goods trade deficit with China in 2019, driven by a larger decline in imports than exports. However, the overall U.S. trade deficit remained stable as importers switched to alternative overseas suppliers.

Conclusion

Taken together, these changes in U.S. trade policy under the Donald Trump administration underscore the complexity and ambiguity of the impact of trade decisions on the economy. Replacing NAFTA with the USMCA, despite the symbolic nature of the change, and waging a trade war with China were important milestones demonstrating the administration's desire to reexamine the principles of international trade.

Nevertheless, the analysis shows that the macroeconomic impact of these measures has been minimal. The USMCA had only a marginal impact on GDP and employment, and the trade war with China resulted in changes in the composition of imports and exports but did not have much impact on the overall trade balance. Actions such as imposing tariffs and recognizing China as a “currency manipulator” led to tensions on the global stage, forcing companies and countries to adapt to the new reality.

The outcome was a lesson that changes in trade policy require a nuanced approach and careful analysis to minimize risks and maximize opportunities. These events remain an example of how policy decisions affect economies, trade relations and global competition.