JavaScript is disabled in your web browser or browser is too old to support JavaScript. Today almost all web pages contain JavaScript, a scripting programming language that runs on visitor's web browser. It makes web pages functional for specific purposes and if disabled for some reason, the content or the functionality of the web page can be limited or unavailable.

Saturday, March 15, 2025

Five economic forces that could shape Trump’s first year

by

37 days ago
20250205
President Donald Trump signs a document in the Oval Office of the White House, Tuesday, February 4, 2025, in Washington. ↔AP Photo

President Donald Trump signs a document in the Oval Office of the White House, Tuesday, February 4, 2025, in Washington. ↔AP Photo

Like most pres­i­dents, Don­ald Trump faces an econ­o­my that sel­dom bends to po­lit­i­cal am­bi­tions.

The Re­pub­li­can has promised strong growth, high tar­iffs, in­come tax cuts and boom­ing oil­fields. But de­spite the sol­id job mar­ket and low 4.1 per cent un­em­ploy­ment rate, he has to con­tend with head­winds like in­fla­tion, a bud­get deficit, in­creased ten­sions over trade, the fall­out from his plans to cur­tail im­mi­gra­tion and a per­sis­tent wealth gap.

Each of these is­sues could help to shape how vot­ers feel about a pres­i­dent they re­turned to the White House with the spe­cif­ic goal of fix­ing the econ­o­my.

For his part, Trump wants to blame all the chal­lenges be­fore him on his pre­de­ces­sor, Joe Biden, who in turn blamed Trump in 2021 for the prob­lems his own ad­min­is­tra­tion had to tack­le.

“This be­gins with con­fronting the eco­nom­ic chaos caused by the failed poli­cies of the last ad­min­is­tra­tion,” Trump told the World Eco­nom­ic Fo­rum on Thurs­day.

Here are five eco­nom­ic forces that could shape the first year of Trump’s pres­i­den­cy:

For vot­ers, the price still isn’t right

Whip­ping in­fla­tion is eas­i­er said than done.

In AP Vote­Cast, an ex­ten­sive sur­vey of last year’s elec­torate, 4 in 10 vot­ers called in­fla­tion the “sin­gle most im­por­tant fac­tor” in their choice for pres­i­dent. About two-thirds of this group vot­ed for Trump — a sign he owes his vic­to­ry in large part to the high cost of gro­ceries, gaso­line, hous­ing, au­tos and oth­er goods.

Go­ing for­ward, month­ly re­ports on the con­sumer price in­dex will be a clear mea­sure of whether Trump can de­liv­er. But in­fla­tion has ac­tu­al­ly in­creased in re­cent months. Con­sumer prices were in­creas­ing at a healthy 2.4 per cent an­nu­al rate in Sep­tem­ber, com­pared with 2.9 per cent in De­cem­ber. Econ­o­mists say in­fla­tion could wors­en if Trump im­pos­es tar­iffs and us­es deficit-fund­ed in­come tax cuts.

Re­pub­li­cans of­ten hit Biden hard on egg prices. But De­moc­rats could use sim­i­lar at­tacks on Trump. Over the past year, cof­fee costs have risen just 1 per cent for US con­sumers, but the In­ter­na­tion­al Mon­e­tary Fund has the price of the ac­tu­al beans climb­ing 55 per cent in a sign that lattes, espres­sos and plain old cups of joe could soon cost more.

Then there’s hous­ing. Vot­ers are still frus­trat­ed by high mort­gage rates and prices stay­ing el­e­vat­ed due to a short­age of prop­er­ties. Shel­ter is 37 per cent of the con­sumer price in­dex. Price in­creas­es for hous­ing have eased, but shel­ter costs are still ris­ing at 4.6 per cent a year, com­pared with an­nu­al in­creas­es av­er­ag­ing 3.3 per cent be­fore the pan­dem­ic.

Trump is bet­ting that more en­er­gy pro­duc­tion can cut in­to in­fla­tion rates, but do­mes­tic pro­duc­tion is al­ready near record lev­els, ac­cord­ing to the gov­ern­ment.

Which tar­iffs are

re­al­ly com­ing

Trump says 25 per cent tar­iffs are com­ing for Mex­i­can and Cana­di­an im­ports as soon as Feb­ru­ary 1. He’s al­so talked about ad­di­tion­al tar­iffs of 10 per cent on Chi­nese goods. His stat­ed goal is to stop il­le­gal bor­der cross­ings and the flow of chem­i­cals used to make drugs such as fen­tanyl.

For Trump, tar­iffs are a diplo­mat­ic tool for his pol­i­cy goals. But they’re al­so a threat pos­si­bly meant to jump­start trade talks. They’re al­so a rev­enue rais­er that he claims could bring tril­lions of dol­lars in­to the trea­sury.

Trump did in­crease tar­iffs dur­ing his first term, with rev­enue col­lec­tion more than dou­bling to an an­nu­al rate of US$85.4 bil­lion, which might sound like a lot but was equal to just 0.4 per cent of the gross do­mes­tic prod­uct. Mul­ti­ple analy­ses by the Bud­get Lab at Yale and the Pe­ter­son In­sti­tute for In­ter­na­tion­al Eco­nom­ics, among oth­ers, say the threat­ened tar­iffs would in­crease costs for a typ­i­cal fam­i­ly in a way that ef­fec­tive­ly rais­es tax­es.

What re­al­ly mat­ters is whether Trump de­liv­ers on his threats. That is why Ben Har­ris, a for­mer Biden ad­vis­er who is now di­rec­tor of eco­nom­ic stud­ies at the Brook­ings In­sti­tu­tion, says vot­ers should fo­cus on av­er­age tar­iff rates.

“Trade is re­al­ly tricky” Har­ris said. “But in broad terms, look at what he does and not what he says.”

What hap­pens with the na­tion­al debt

Trump likes to blame in­fla­tion on the na­tion­al debt, say­ing Biden’s poli­cies flood­ed the US econ­o­my with more mon­ey than it could ab­sorb. But about 22 per cent of the US$36 tril­lion out­stand­ing to­tal debt orig­i­nat­ed from the poli­cies of Trump’s first term, ac­cord­ing to the Com­mit­tee for a Re­spon­si­ble Fed­er­al Bud­get, a fis­cal watch­dog.

Paul Win­free, a for­mer Trump staffer who is now pres­i­dent and CEO of the Eco­nom­ic Pol­i­cy In­no­va­tion Cen­ter, warned in a re­cent analy­sis that the US is get­ting too close for com­fort to its fis­cal lim­its. His analy­sis sug­gests that if Trump can pre­serve 3 per cent growth he could ex­tend his ex­pir­ing 2017 tax cuts while keep­ing the debt suf­fi­cient­ly sta­ble by cut­ting spend­ing US$100 bil­lion to US$140 bil­lion a year.

The risk is that high­er bor­row­ing costs and debt can lim­it what Trump does while keep­ing bor­row­ing costs high for con­sumers. Law­mak­ers who once viewed the debt as prob­lem years away in­creas­ing­ly see it as some­thing to ad­dress now.

“One of the biggest vibe shifts I’m pick­ing up on now among pol­i­cy­mak­ers is they’re be­gin­ning to re­alise the long-term is to­day,” Win­free said.

Win­free said the key num­ber to watch is the in­ter­est rates charged on US debt — which will tell the pub­lic if in­vestors think the amount of bor­row­ing is prob­lem­at­ic. In­ter­est on the 10-year US Trea­sury note is at rough­ly 4.6 per cent, up a full per­cent­age point since Sep­tem­ber.

Im­mi­grants are still need­ed to fill jobs

Trump’s ex­ec­u­tive or­ders are a clear crack­down on im­mi­gra­tion — and that could be a drag on eco­nom­ic growth and cause month­ly job gains to slow. Trump of­ten frames im­mi­gra­tion as a crim­i­nal and na­tion­al se­cu­ri­ty is­sue by fo­cus­ing on peo­ple cross­ing the bor­der il­le­gal­ly.

But economies that can’t add enough work­ers are at risk of stag­nat­ing — and the US labour mar­ket at this stage needs im­mi­grants as part of the jobs mix. About 84% of Amer­i­ca’s net pop­u­la­tion growth last year came from im­mi­grants, ac­cord­ing to the Cen­sus Bu­reau. That’s 2.8 mil­lion im­mi­grants.

“They not on­ly work in the econ­o­my, but they spend in the econ­o­my,” said Satyam Pan­day, chief US econ­o­mist at S&P Glob­al Rat­ings. “Their spend­ing is some­body else’s in­come in the econ­o­my.”

If Trump were sim­ply to put im­mi­gra­tion back at his 2017 and 2019 av­er­ages of 750,000 im­mi­grants an­nu­al­ly, growth could slow from an es­ti­mat­ed 2.7% last year to 2% go­ing for­ward, Pan­day’s analy­sis found. The con­struc­tion, agri­cul­ture and leisure and hos­pi­tal­i­ty in­dus­tries would prob­a­bly strug­gle to find em­ploy­ees.

In oth­er words, it’s worth mon­i­tor­ing the month­ly jobs re­port and im­mi­gra­tion flows.

Mind the wealth gap

Trump is go­ing to have to fig­ure out how to bal­ance the in­ter­ests of bil­lion­aires with those of his blue- col­lar vot­ers. His in­au­gur­al events in­clud­ed sev­er­al of the world’s wealth­i­est men: Tes­la’s Elon Musk, Ama­zon’s Jeff Be­zos, Meta’s Mark Zucker­berg and LVMH’s Bernard Ar­nault. Each is worth rough­ly $200 bil­lion or more, ac­cord­ing to the Bloomberg Bil­lion­aire’s In­dex.

Scott El­lis, a mem­ber of the group Pa­tri­ot­ic Mil­lion­aires, said it’s worth mon­i­tor­ing just how much their wealth in­creas­es un­der Trump. This year, as of Fri­day, Ar­nault’s net worth has risen US$23 bil­lion, Be­zos is up by US$15 bil­lion, Zucker­berg is up by US$18 bil­lion and Musk’s wealth has risen by US$6 bil­lion. Those are all month­ly in­creas­es.

By con­trast, the most re­cent avail­able Cen­sus Bu­reau da­ta show that the me­di­an US house­hold wealth rose US$9,600 in 2021-2022, to US$176,500. (AP)


Related articles

Sponsored

Weather

PORT OF SPAIN WEATHER

Sponsored