WASHINGTON — Like many leaders in history, Donald Trump is grappling with an economy that doesn’t easily align with political aspirations. The Republican aims for significant economic growth, advocating for high tariffs, reductions in income taxes, and enhanced oil production. However, alongside a robust job market and a low 4.1% unemployment rate, Trump faces various challenges, including inflation, a growing budget deficit, escalated trade tensions, consequences from his immigration policies, and an ongoing wealth disparity.
Each of these factors could influence voter sentiment towards a president who was elected with a mandate to rectify economic issues. Trump, in his stance, seeks to attribute the economic hurdles to his predecessor, Joe Biden, who, in 2021, similarly pointed fingers at Trump for the issues his own administration encountered.
“This begins with confronting the economic chaos caused by the failed policies of the last administration,” Trump remarked during his address at the World Economic Forum.
Several pivotal economic elements could significantly impact the initial year of Trump’s presidency:
**Inflation Concerns for Voters**
Addressing inflation is a complex task. According to an extensive survey known as VoteCast, 40% of voters identified inflation as “the single most important factor” in their presidential choice. Among this group, Trump received nearly two-thirds of the votes, indicating that voter dissatisfaction with rising costs for groceries, fuel, housing, vehicles, and other essentials played a crucial role in his electoral success.
Looking ahead, the consumer price index reports will serve as a crucial indicator of Trump’s effectiveness in managing inflation, which has increased recently. As of September, consumer prices rose at an annual rate of 2.4%, compared to 2.9% in December. Economists warn that Trump’s proposed tariff increases and deficit-funded tax cuts could exacerbate inflation. While Republicans have pointed fingers at Biden for soaring egg prices, the Democrats might employ similar tactics against Trump. Interestingly, while coffee prices have climbed minimally for consumers, the cost of coffee beans has surged by 55%, suggesting that the prices of popular coffee drinks may soon rise.
Housing remains another significant concern, with elevated mortgage rates and property costs affecting voter sentiment. Shelter costs constitute 37% of the consumer price index. While the pace of price rises for housing has slowed, it’s still increasing at a rate of 4.6% per year, compared to a pre-pandemic average of 3.3%. Trump anticipates that expanding energy production will alleviate inflation, yet current domestic production levels are already near historical highs.
**Tariffs and Trade Policies**
Trump has announced plans for 25% tariffs on imports from Mexico and Canada, set to take effect on February 1, alongside a proposal for 10% tariffs on Chinese goods. His objective is to deter illegal immigration and restrict the flow of drugs like fentanyl into the U.S.
For Trump, tariffs are not just economic tools; they serve diplomatic objectives while potentially revitalizing trade talks and generating revenue that he claims could significantly bolster the treasury. While Trump raised tariffs in his previous term, leading to a doubling of revenue to $85.4 billion annually, this income constituted a mere 0.4% of the GDP. Numerous studies, including analyses from the Budget Lab at Yale and the Peterson Institute for International Economics, indicate that these threatened tariff increases could result in higher costs for families, resembling a tax hike.
The real evaluation will lie in whether Trump follows through with these tariff proposals. Ben Harris, a former advisor to Biden and now director of economic studies at the Brookings Institution, suggests that voters should pay attention to the average tariff rates instead of the rhetoric. “Trade is really tricky,” Harris commented. “But in broad terms, look at what he does and not what he says.”
**Impact of National Debt**
Trump tends to attribute inflation to the national debt, stating that Biden’s economic policies flooded the market with excess money. However, around 22% of the current $36 trillion national debt stems from policies enacted during Trump’s first term, according to a fiscal watchdog.
Paul Winfree, who previously worked with Trump and now leads the Economic Policy Innovation Center, has warned that the U.S. is nearing a precarious fiscal situation. His findings suggest that to maintain a 3% growth rate, Trump should aim to extend his 2017 tax cuts while managing stable debt by reducing spending by $100 billion to $140 billion annually.
Increasing borrowing costs could complicate Trump’s strategies, potentially hindering his ability to enact policies while elevating costs for consumers. Policymakers are beginning to recognize that the long-term debt issue is no longer a distant concern but an immediate challenge.
Winfree emphasized the importance of monitoring interest rates associated with U.S. debt, which reflect public sentiment about borrowing levels. Currently, interest rates on the 10-year U.S. Treasury note stand at approximately 4.6%, seeing a significant rise since September.
**The Role of Immigrants in Job Markets**
Trump’s executive orders targeting immigration policies may hinder economic growth by contributing to reduced job gains. Framing immigration primarily as a criminal and national security issue has overshadowed the necessity of workers in a thriving economy—the U.S. labor market relies significantly on immigrants. Data from the Census Bureau indicates that 84% of the national population growth last year stemmed from immigration, adding 2.8 million immigrants to the country.
“They not only work in the economy, but they spend in the economy,” noted Satyam Panday, chief U.S. economist at S&P Global Ratings. “Their spending is somebody else’s income in the economy.”
If immigration levels were to revert to the averages seen in 2017 and 2019 (around 750,000 immigrants annually), future economic growth could potentially dip from an estimated 2.7% to 2%, according to Panday’s analysis, placing a strain on the construction, agriculture, and hospitality sectors.
Thus, keeping an eye on monthly employment reports and immigration patterns will be crucial going forward.
**Addressing the Wealth Disparity**
Trump faces the challenge of balancing the interests of billionaires alongside those of his working-class supporters. High-profile individuals like Elon Musk, Jeff Bezos, Mark Zuckerberg, and Bernard Arnault have been present in events surrounding his administration, and their fortunes have soared during his term.
Scott Ellis, a member of the Patriotic Millionaires group, emphasizes the importance of tracking how the wealth of these billionaires evolves under Trump’s leadership. Currently, Arnault’s wealth has grown by $23 billion, Bezos by $15 billion, Zuckerberg by $18 billion, and Musk by $6 billion just this year. In contrast, statistics from the Census Bureau reveal that the median household wealth in the U.S. increased by only $9,600 over the 2021-2022 period, reaching $176,500.
