Is Trumponomics making the American economy great again?

Christopher Craig


March 8th, 2019

No matter your opinions on him personally, the US economy is seemingly booming under President Trump. But can this really be attributed to Trumponomics? Chris Craig investigates.

The booming US economy

The US economy is doing well. Perhaps not ‘better than anybody in the world’ as President Trump boasts, but the numbers are still fairly extraordinary.[1] GDP growth recently hit the highest level since 2014.[2] The unemployment rate is the lowest in 49 years.[3] Stocks hit record highs in September and are still almost 25% higher than election day.[4] Business investment, corporate profits and small business confidence have all hit record peaks.[5],[6],[7] Overall business confidence is at its highest level since 2011, whilst consumer confidence is at levels not seen since 2000.[8],[9] All of this is occurring while the Federal Reserve is ‘normalising’ monetary policy through raising interest rates and quantitative tightening – removing US$50b from the economy every month.[10]

The ‘Trump Effect’ visualised (data prior to election day vs current figures)

Before looking at whether Trump can be thanked for all of this, let’s take a quick look at what Trumponomics entails.

Trump’s expansionary policies

The cornerstone of Trump’s economic plan has been tax cuts. The Tax Cuts and Jobs Act of 2017 simplified and reduced personal income tax for most Americans whilst dropping corporate tax from 35% to 21%.[11] Trump has also focused on deregulation, and is currently repealing four times as many significant regulations (regulations which cost at least $100m) as he is enacting.[12] Importantly, Trump is also enacting roughly 70% fewer regulations than Obama and Bush did over the same time period.[13] Concurrently, Trump has been injecting money into the economy through increased defence and infrastructure spending.[14]

This is all in addition to Trump’s dramatic attack on free trade, which has seen tariffs increase by $250b on Chinese goods alone.[15] These policies have only really just started to take effect however and so their impact on the US economy is difficult to ascertain. Most economists though believe nothing good will come of them.[16],[17]

Increased government spending, cutting taxes and regulations – surely these expansionary policies have caused the recent boom?

Is the Trump effect statistically significant?

The numbers tell a somewhat muted story. To analyse Trump’s impact on GDP, European economists modelled a ‘synthetic control’ US economy which removed the effect of the Trump administration, and compared it to the actual data. They concluded that Trump has had absolutely no impact on GDP growth.[18] This is in slight contrast to the analysis of the Brookings Institution and the Peterson Institute for International Economics, which both estimate Trump’s policies have added a maximum 0.2% to GDP per quarter.[19],[20] The European economists used their method to discern the impact of Trump on unemployment, and again found nothing.[21] Indeed, slightly fewer jobs have been created under Trump relative to the final period of the Obama administration.[22] The modest impact of Trump continues when looking at deregulation, which has only saved the economy $1.6b per year.[23] Not nothing, but hardly a footnote in a $18.6 trillion economy.

The story continues when looking at business investment levels. Most of the dramatic gains can be explained by the coincidental increase in oil prices under Trump (up to October), causing investment in this industry to soar. If we remove this from the data, business investment has increased by 0.6% per annum under Trump, compared to the raw figure of 4%.[24] Again, not insignificant, but hardly a Trumpian miracle. Indeed, only 12% of surveyed companies have increased investment levels since the tax cuts.[25]

Trump’s effect on corporate profits however is more direct. The tax bill of American companies has fallen by 33%, directly causing a 16% year on year increase in corporate profits.[26] Although enigmatic, the stock market does appear to have been influenced by Trump. In the final Obama years the S&P 500 grew by only 5.3%, compared to the previously mentioned near 25% rise since Trump’s election.[27] Trump’s policies may have backfired however, as 2018’s gains have been all but erased since October partly on the back of trade war fears.[28]

The choice to assess the stock market from election day (cf. inauguration) is to emphasise the indisputable impact Trump has had on the US economy, which is on confidence. Whether it is because he is republican, a known billionaire, or just better at marketing himself as pro-business, Trump has stirred the spirit of the American people. The uptick in business sentiment, especially for small businesses, dramatically begins in November 2016.[29],[30] The same can be said for consumer sentiment.[31] It should be noted however that some of these measures have started to fall again in recent months for reasons including politics and Trump’s trade policies.[32],[33]

Not every economic indicator is created equally however. The impact they have on the lives of everyday citizens varies dramatically. It is a given that strong GDP growth and a low unemployment rate carry material benefits for vast amounts of people, but the same cannot be said for some of the other indicators. As we have seen, both corporate profits and business confidence are soaring. However, this has failed to ‘trickle down’ into high levels of business investment (ignoring oil and gas) or wage growth.[34] Indeed most of the increased profits have merely gone towards stock consolidation, which is at record highs and artificially inflating the stock market.[35] Share market gains also translate into few benefits for the average American, as 84% of shares are owned by the wealthiest 10%.[36] Gains in consumer confidence have netted little real benefit too, with consumer spending throughout the Trump administration being decidedly average.[37] 

The profound cost of Trumponomics must also be mentioned. Trump is essentially stimulating an economy still in the midst of a recovery. The budget deficit for fiscal 2018 blew out by 17%.[38] The October 2018 budget deficit was almost 60% greater than it was one year ago.[39] Looking to the long term, the tax cuts are expected to add $1 trillion to US debt at a minimum, even accounting for the increased revenues due to increased growth.[40]

Accordingly, Trump is patting himself mightily on the back for economic gains upon which he’s had only a modest effect, which could be negated by his trade war, and which will have to be paid for by future generations. Perhaps the US economy is not going better than anybody else in the world then.

[1] AP., & ABC. (2018). Donald Trump says he is thankful for making ‘tremendous difference’ to US on Thanksgiving. Retrieved from

[2] Trading Economics. (2018). United States GDP Growth Rate. Retrieved from

[3] Trading Economics. (2018). United States Unemployment Rate. Retrieved from

[4] (2018). S&P 500 Historical Data. Retrieved from

[5] U.S Bureau of Economic Analysis. (2018). Private Nonresidential Fixed Investment. Retrieved from

[6] Trading Economics. (2018). United States Corporate Profits. Retrieved from

[7] NFIB. (2018). Small Business Optimism. Retrieved from

[8] Business Roundtable. (2018). Business Roundtable CEO Economic Outlook Index Remains Strong, Declines Slightly in Q3. Retrieved from

[9] The Conference Board. (2018) Consumer Measures. Retrieved from

[10] Anstey, C. (2018). After Years of Easing, Meet Quantitative Tightening: QuickTake. Retrieved from

[11] Tax Foundation. (2017). Preliminary Details and Analysis of the Tax Cuts and Jobs Act. Retrieved from

[12] Levin, A., & Sebenius, A. (2018). Trump Claims $1.6 Billion a Year Saved From Cutting Red Tape. Retrieved from

[13] Dooling, B.C.E., Opinion Contributors. (2018). Trump hit the regulatory brakes, but hasn’t found reverse gear. Retrieved from

[14] Cox, J. (2018). Trump has set economic growth on fire. Here is how he did it. Retrieved from

[15] Blumberg, Y. (2018). Trump’s $250 billion in China tariffs are now in effect – here’s what could get more expensive. Retrieved from

[16] Wessel, D. (2018). Wessel’s Economic Update: Are Trump’s tariffs hurting the US economy? Retrieved from

[17] Kearns, J. (2018). Economists Say Trump’s Tariffs Are Unfavorable for U.S. Growth. Retrieved from

[18] Born, B., Müller, G., Schularick, M., & Sedláček, P. (2018). Stable genius: Estimating the ‘Trump effect’ on the US economy. Retrieved from

[19] Sheiner, L., & Belz, S. (2018). Takeaways from the Third Quarter Update. Retrieved from

[20] The Economist. (2018). What goes up: Strong growth data obscure a probable slowdown to come. Retrieved from

[21] Born, B., Müller, G., Schularick, M., & Sedláček, P. (2018). Stable genius: Estimating the ‘Trump effect’ on the US economy. Retrieved from

[22] Horsley, S. (2018). Fact Check: Who Gets Credit For The Booming U.S. Economy? Retrieved from

[23] Tanner, M. D. (2018). Who’s really to thank for booming economy? Donald Trump or Barack Obama? Retrieved from

[24] Furman, J. (2018). The oil investment boom might be ending. Retrieved from

[25] The Economist. (2018). What goes up: Strong growth data obscure a probable slowdown to come. Retrieved from

[26] Torry, H., & Francis, T. (2018). U.S. Corporate Profits Soard in Second Quarter, Boosted by Tax Cuts and Economic Growth. Retrieved from

[27] (2018). S&P 500 Historical Data. Retrieved from

[28] Pramuk, J. (2018). Trump loved celebrating the stock market surge in 2017, but he’s been quiet about this year’s declines. Retrieved from

[29] NFIB. (2018). Small Business Optimism. Retrieved from

[30] Business Roundtable. (2018). Business Roundtable CEO Economic Outlook Index Remains Strong, Declines Slightly in Q3. Retrieved from  

[31] Foster, S. (2018). U.S. Consumer Confidence Jumps to 18-Year High. Retrieved from

[32] Business Roundtable. (2018). Business Roundtable CEO Economic Outlook Index Remains Strong, Declines Slightly in Q3. Retrieved from

[33] NFIB. (2018). Small Business Optimism Marks Two Years of Continued Historic Readings. Retrieved from

[34] Bureau of Labor Statistics. (2018). Average hourly eanrings of all employees, 1982-1984 dollars, total private, seasonally adjusted. Retrieved from

[35] Rapoport, M., & Francis, T. (2018). Share Buybacks Help Lift Corporate Earnings. Retrieved from

[36] Jacobson, L. (2018). What percentage of Americans own stocks? Retrieved from

[37] U.S. Bureau of Economic Analysis. (2018). Real Personal Consumption Expenditures. Retrieved from

[38] Pramuk, J. (2018). US budget deficit expands to $779 billion in fiscal 2018 as spending surges. Retrieved from

[39] McGregor, S. (2018). U.S. Budget Deficit Jumps to $100 Billion at Start of Fiscal Year. Retrieved from

[40] Tankersley, J. (2018). No, Trump’s Tax Cut Isn’t Paying for Itself (at Least Not Yet). Retrieved from

The views expressed within this article are those of the author and do not represent the views of the ESSA Committee or the Society's sponsors. Use of any content from this article should clearly attribute the work to the author and not to ESSA or its sponsors.

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