As economists reflect on President Donald Trump’s economic legacy, the pandemic is undoubtedly front and center. While first and foremost a public health crisis, Covid-19 decimated the strongest labor market in decades, while economic activity plunged, then rebounded at record levels.
Before the pandemic, Trump had shaped the American economy in ways that reflected his worldview — a go-it-alone, America-first outlook on trade, a hands-off approach to corporate operations and taxation coupled with scant investment in the well-being of lower-income families. These choices would have ripple effects impacting — and sometimes impeding — the nation’s pandemic response.
“I think Trump’s legacy is going to come down to what happened during the pandemic, once the history books are written,” said Jamie Cox, managing partner at Harris Financial Group.
Wall Street versus Main Street
The Trump presidency ended with the market near record highs, stocks having regained even the steep plunge they sustained in the spring. Trump’s persistent tendency to view stock market performance as a barometer of his success, though, is misguided — and experts say he deserves little credit for the stabilization and eventual rebound of Wall Street.
“The hero of the moment is basically the Federal Reserve, because they halted the collapse of markets and they did it with significant force,” Cox said.
“The fact of the matter is, there’s very little evidence to suggest the administration’s policy had lasting impact,” said Peter Essele, head of portfolio management for Commonwealth Financial Network. “The major drivers of economic growth over time are population growth and technological improvements. Those are the only two components that are statistically significant,” he said.
In contrast to the soaring stock market, President Joe Biden inherits an economy in which millions of American households are facing financial crisis due to ongoing job losses. “You could almost say it was the best of times, it was the worst of times — a tale of two experiences,” said Sam Stovall, chief investment strategist at CFRA Research.
The failure of a nationwide Covid-19 contentment and mitigation strategy has hampered the economy’s ability to rebound, and experts say the opportunity for a quick, V-shaped recovery was largely squandered.
“Unemployment stagnated at 6.7 percent as closures and declining demand forced businesses to once again furlough and lay off workers,” Daniel Zhao, senior economist at Glassdoor, wrote in a recent analysis. “Rather than simply tapping the brakes, the economy is actually being thrown in reverse,” he warned.
Prior to the pandemic, the unemployment rate touched a low unmatched in more than half a century. Counter to economists’ expectations, the economy ran with a 3.5 percent unemployment rate without triggering a spike in inflation. Women, minorities and low-skilled workers saw gains — improvements that largely vanished when Covid-19 tore through the labor market, decimating the low-wage service sectors that sustained many of these marginalized workers.
Trump’s pledge to bring manufacturing back to American shores at scale, a key facet of his 2016 campaign, remained unfulfilled. “I think the pandemic put a little bit of a curve ball into what potentially could have played out. We were promised a manufacturing renaissance in the U.S., and we haven’t seen that,” Essele said.
Employment in manufacturing has undergone a decades-long secular decline, and plunged to a trough of roughly 11.5 million in early 2010. Since then, it had been inching steadily higher. Industry leaders say Trump doesn’t deserve the credit, since the trajectory began well before.
“With the last jobs report while Donald Trump was president, we can now say with absolute clarity: Donald Trump failed to revive American manufacturing. The heart of America’s economy is in worse shape than when he entered office,” Alliance for American Manufacturing president Scott Paul said in a statement.
Before the coronavirus pandemic triggered concurrent public health and economic crises unmatched in modern times, the trade war Trump waged against China likely would have comprised a significant part of his economic legacy. After years of escalating, financially damaging tit-for-tat tariffs, the administration touted a “Phase One” trade deal signed in January 2020 — although trade policy experts said the agreement was less than the sum of its parts and that Trump won meager concessions at great cost to American companies and consumers.
“The Chinese have not given Trump virtually anything, and the tariffs are hurting the United States,” said Jacob Kirkegaard, senior fellow at the Peterson Institute for International Economics. Kirkegaard predicted that the Biden administration will reevaluate those trade sanctions for the sake of the domestic economy. “They’re damaging to the U.S. economy, and they’re a tax on the U.S. consumer in the middle of a pandemic,” he said.
Experts said the gains companies realized by lower corporate taxes were mitigated by the economic damage Trump inflicted with his protectionist trade agenda. “Trump’s trade policy was dictated by his personal belief that tariffs are good and trade wars are easy to win, and that China is paying all these tariffs. That is demonstrably wrong, and this unilateral imposition of trade tariffs not just on China but on American allies has been a total, abject failure,” Kirkegaard said.
“I think Trump had the right idea that China needed to be dealt with,” Cox said, but tariffs and Trump’s unilateral approach were both poorly chosen tactics. “He basically took the major benefits of the tax cuts and spent some of it on a trade war, and it was not very successful. We’re not a lot better off in terms of trade and manufacturing,” he said.
Kirkegaard said Trump was more successful extracting concessions from Mexico during his administration’s drawn-out, sometimes acrimonious effort to overhaul NAFTA, the free-trade agreement that has governed commerce between the U.S., Canada and Mexico since 1994. Those changes to provisions surrounding labor conditions and worker pay, though, came at a significant diplomatic cost.
“There’s a reason why these countries are wary today of working with the U.S.,” Kirkegaard said. “The broader political costs in terms of the trust and prestige of the United States, I think, outweighed the changes he made to NAFTA.”
Lower taxes, higher debts
If Covid-19 was one bookend to Trump’s economic legacy, the other would be the Tax Cuts and Jobs Act of 2017. This sweeping tax code overhaul slashed the corporate tax rate to 21 percent (down from 35 percent), a move proponents said would trickle down to workers in the form of higher wages.
“The Tax Cut and Jobs Act is probably the one signature piece of legislation that set the course for markets for the remaining years of his administration. When you provide a corporate tax cut of that magnitude, it’s a turbo boost to earnings for major corporations, and for small businesses,” Cox said.
On the corporate side, though, those promised wage gains never materialized. Instead, executive compensation increased relative to average worker pay, and companies implemented stock buybacks at an unprecedented rate. Economic output expanded, but at a rate that fell far short of the 4 percent GDP growth Trump had promised. “The overriding impression I feel is we had an exceptional period of growth and job creation, but when you break things down, that’s actually not the case,” Essele said.
While many individual taxpayers also did benefit from the TCJA’s doubling of the standard deduction, the individual tax breaks in the law were designed to sunset after a period of years — leaving a thorny problem for future Congressional delegations to sort out. “It’s built into budget projections, but in order to get it, Congress will have to raise people’s taxes, and that’s never popular,” said Eric Toder, co-director of the Urban-Brookings Tax Policy Center.
The TCJA presents other challenges economists say have the potential to cause economic pain down the road. An analysis by the Tax Foundation found that the Treasury will take in $1.8 trillion less revenue over the course of a decade — a situation that could burden taxpayers once interest rates rise.
While GDP growth was a fraction of a percentage point higher during Trump’s term than in the four years prior, Essele said this came at an enormous cost of ballooning national debt — even before Covid came into play. “We’ve mortgaged our future for minimal, marginal improvements in growth across the board. Investors and citizens should ask ourselves if mortgaging our future was worth the slight increase in GDP growth,” he said, warning of a potential “tipping point” if global investor appetite for U.S. debt wanes.
“The government debt has to be paid for one way or another,” Toder said, and higher cost of debt servicing could come at the expense of other spending priorities.
“What does it mean to get a tax cut when the government is borrowing money to cut your taxes and you’re going to pay it back some day?” he said. “It’s going to be much harder to fund things in the future. That’s a darker side of the legacy.”