Feb. 28 (UPI) — Former President Donald Trump promised to bring his business savvy to the White House to grow the U.S. economy. As he seeks re-election, some see his first-term record as a promise kept. For others, financial inequality deepened.
The role a president and their policies play in the health of the economy are often overstated, Chris Tilly, economist and professor at the UCLA Luskin School of Public Affairs, told UPI.
The U.S. economy is but one cog in the global economy. War, catastrophic weather events, political logjams abroad and unprecedented events like the COVID-19 pandemic play a role.
“We tend to give presidents too much credit or blame,” Tilly said. “Most of what is going on in the economy is not something the president can control. Even in terms of political actors in the U.S., the Federal Reserve tends to have much more control over what’s happening than the president does.”
Understanding what makes a healthy economy is not so simple, either. Headline markers that are most often discussed include unemployment, gross domestic product and inflation. These markers can give an impression of the economy’s performance in the short term.
However, there are many ways policy can affect the economy in the long run. Infrastructure improvements and investments in education can yield positive effects to long-term productivity and growth.
By many key metrics, Trump did not build a strong economy as much as he inherited one.
“Unemployment was low and heading lower. Inflation was slow and the economy was doing well,” Joshua Gotbaum, a Brookings Institution economist, told UPI.
Under President Barack Obama, unemployment lowered and steadied to an average of 4.7%. More than 8.9 million new jobs were added, the sixth-most under any president.
The United States rebounded from the Great Recession and the inflation rate was lower than under seven of the previous eight administrations.
Tax cuts and jobs
Trump’s first and perhaps most impactful action was supporting and signing the Tax Cuts and Jobs Act in 2017.
The tax reform law was presented by Trump as a $3.2 trillion tax cut for “American families.” He said the average family of four earning $75,000 per year would see a tax cut of $2,000 or more, thanks in part to an increase in Child Tax Credits.
The law lowered corporate tax rates by more than 10%. Trump shared anecdotes that suggested the tax cut for corporations would trickle down to middle-class workers, as the wealthy would invest in their workforce and expand their operations.
“On one hand, it stimulated the economy. From everything I know, the tax cuts did go disproportionately to the wealthiest,” Tilly said. “That does increase inequality. Something like infrastructure is spread more equally.”
Tilly adds that the analysis from economists is not conclusive and there is not an agreed upon way to prove what exactly caused or worsened inequality.
“I am making an argument based on simple economic principles,” he said. “My logic is that since the largest benefits of the tax cuts go to wealthier individuals, the first-order effects therefore tend to increase inequality.”
One tool economists use to measure inequality is the Gini Index, or Gini Coefficient. It is a measure of income inequality and wealth distribution used throughout the world. A measure of 0% represents perfect equality, while a measure of 100% means perfect inequality.
The Gini Index for the United States increased steadily following the tax cuts, according to the World Bank. It peaked at 41.5% in 2019, the highest since 1963. This was about a half-point increase since 2016.
The average disposable income per capita, when adjusted for inflation, fell under Trump and unemployment hit the fifth-highest average rate at more than 6%. The rate of poverty decreased by 0.5% in 2018, but it also decreased for three consecutive years prior.
In October, the Congressional Budget Office released a report suggesting that the Tax Cuts and Jobs Act had a significant negative impact on revenue.
Historically, unemployment and the national deficit had followed a similar path of growth and loss. That relationship shifted following the passage of Trump’s tax reform law, leaving the deficit to grow out of pace with the unemployment rate.
“Idiosyncratic factors can raise or lower deficits in any given year, much as capital gains realizations lowered deficits last year,” the report says. “But beyond these one-offs, the structural deficit — is clearly higher now due to the 2017 tax cuts.”
Trade with China
U.S. trade relations with China were tenuous under the Trump administration, highlighted by both sides imposing tariffs on the other.
In the summer of 2018, Trump announced his plan to impose tariffs on $50 billion in imports from China. Trump alleged that China engaged in unfair practices such as stealing intellectual property from the United States. He also sought to reduce the U.S. trade deficit and level the playing field for domestic manufacturers.
China responded by placing tariffs on U.S. goods. Trump then called for a 10% tariff on $200 billion worth of Chinese imports. The tariffs ultimately increased to 25%.
“If China increases its tariffs yet again, we will meet that action by pursuing additional tariffs on another $200 billion of goods,” Trump said in a statement. “The trade relationship between the United States and China must be much more equitable.”
Trump has continued to say the tariffs were a boon for the U.S. economy. He credits the tariffs for funding $28 billion in subsidies to farmers that were approved during his time in office.
In 2020, Trump touted a first phase of a historic trade agreement with China, claiming China would exceed the baseline amount of its 2017 purchase of U.S. exports by no less than $200 billion.
“They’re going to be spending much more than $200 billion over the next two years, including up to $50 billion just on agriculture alone,” Trump said at the signing of the agreement.
The announcement effectively signaled the end of a costly trade war, one that the U.S.-China Business Council estimates resulted in the loss of 245,000 U.S. jobs. But the purchase of additional goods never came to fruition.
The COVID-19 pandemic curtailed production and trade globally. Business operations across all industries, including manufacturing, slowed and in some cases halted due to lockdowns.
China’s purchase of U.S. goods fell about $12 billion below that 2017 baseline, meaning none of the additional $200 billion in exports it committed to was purchased.
COVID-19 relief
The final economic policy decision Trump faced before being voted out of office was how to respond to the COVID-19 pandemic.
In March 2020, more than two months after the emergence of COVID-19 was reported in the United States, Trumps signed a $2 trillion relief package to offset the financial challenges of the pandemic.
The package included $300 billion in one-time stimulus payments to taxpayers. Many received $1,200 stimulus checks.
It also created the Paycheck Protection Program, a $935 billion source of business loans to assist employers in keeping employees on the job and paid.
Another $500 billion was allocated to loans for corporations and hundreds of billions more for state and local governments.
Former U.N. ambassador Nikki Haley, who is running against Trump for the GOP presidential nomination, has been among the critics of the government spending under the Trump administration.
Tilly argues that the unprecedented nature of the COVID-19 pandemic created a necessity for Trump and Congress to sign off on the unprecedented relief package.
“COVID increased the deficit because you had a very sharp and sudden constriction of economic activity,” Tilly said. “Just to keep people going, the series of COVID relief actions passed by Congress, that was the right thing to do. People needed to survive. People were going to starve if they didn’t have it.”
The economic impact of the pandemic marred most of Trump’s final year in office.
Unemployment spiked at more than 14%. Global supply chains fell behind demand for months, due to a short interruption in production caused by public health protocols. This also played a role in the rapid inflation that has followed.
The interruption of production is something Tilly says can never be recovered.
“When we lost a certain set of economic activity, in some sense you never get it back,” he said. “Certainly in the U.S. and other countries, there were people who exited the workforce and didn’t necessarily come back. That is more of a long-term loss of productive resources.”
