Yves here. This post on Trump’s economics, if you can even depict him as having ideas beyond loving tariffs, crypto, and lower taxes, is by former senior government officials in policy roles and is thus more heavyweight than normal VoxEU fare. It gives a high level view of what Trump has been up to and how that amounts to defaulting on his MAGA promises.
By Gary Gensler, Professor of the Practice, Global Economics and Management, and Professor of the Practice, Finance, Sloan School of Management Massachusetts Institute of Technology; Simon Johnson, Ronald A. Kurtz Professor of Entrepreneurship, Head of the Global Economics and Management Group and Faculty Chair of the Sloan Fellows Programme Massachusetts Institute of Technology; Ugo Panizza; Vice President Centre for Economic Policy Research; Professor of Economics and Pictet Chair Geneva Graduate Institute; and Beatrice Weder di Mauro, President Centre for Economic Policy Research; President Professor of Global Economics, Climate and Nature Finance Geneva Graduate Institute; Visiting Professor Hoffmann Global Institute for Business and Society INSEAD. Originally published at VoxEU
As soon as he took office for the second time, Donald Trump made it clear that there would be dramatic changes in US government policy. This column describes how President Trump’s actions may have undermined his stated goal to “Make America Great Again” with low inflation and high rates of growth and employment. Instead, the policies seem more likely to deliver additional frustration and disappointment for most Americans.
As soon as he took office for the second time, Donald Trump made it clear that there would be dramatic changes in US government policy. Since January 2025, President Trump’s foreign policy changes have led to a cooling of economic relationships between the US and its closest allies (including Canada, Mexico, most of Europe, and NATO), a shifting of American support away from Ukraine towards Russia, and attacks on alleged drug traffickers in the Caribbean. On the domestic policy front, there have been headline-grabbing actions, such as an increase in deportations (and seizing people off the streets without appropriate due process). In terms of economic policies and outcomes, though, President Trump’s actions may have undermined his stated goal of “Making America Great Again” with low inflation and high rates of growth and employment.
Inflation has continued to run around 3%, significantly above the Federal Reserve’s 2% target. Yet President Trump has repeatedly railed at the Fed, including ad hominem, for not lowering interest rates further and faster – despite the fact that easier monetary policy is usually associated with higher inflation. He also has asserted his right to fire Federal Reserve governors on the basis of thin and unproven charges (Manners et al. 2025). He has made it clear that the next chair of the Fed will be someone whom he expects to be more pliant. When the President did not like the data reported by the Bureau of Labor Statistics, he fired its head, undermining the credibility of an institution that provides a fundamental input for the conduct of sound economic policy.
None of these moves has lowered inflation expectations. History tells us that political control over any central bank results in higher inflation than would otherwise be the case.
President Trump is lashing out at the Fed even though the economy has remained resilient. Unemployment remains relatively low, and the private sector continues to create jobs, although most of these jobs are in healthcare (Hiring Lab 2025). The stock market has done remarkably well so far this year. Yet, as evidenced in the last month’s election returns, there is voter dissatisfaction with the economy during this administration.
So, what is the problem on everyday Americans’ minds?
President Trump was elected, in part, on the promise of helping people lower down the income scale. Under his second administration, though, income and wealth gaps have only widened – and his policies are likely to further widen the gap (Goulart and Shuster 2025).
Healthcare premiums for (lower-income) people who buy insurance through exchanges have risen dramatically. The supplementary food aid programme (SNAP, previously known as ‘food stamps’) was cut sharply during the recent government shutdown – deliberately by the administration, which argued in court cases that it had the authority to do so. The cost of electricity – essential to survival in a country with extremes of hot and cold – is up sharply in many markets. House prices remain high and shelter is increasingly unaffordable for many.
The President’s policies on trade, immigration, taxes, and artificial intelligence do not lower these costs. Nor does invective against the Fed or against immigrants.
Adding to these cost pressures, tariffs are a tax – one that falls disproportionately on lower-income Americans (Clausing and Lovely 2024). Families already struggling to pay their bills are finding themselves squeezed further. Almost all the tax reductions from President Trump’s “Big Beautiful Bill” go to people who are already well-off.
Beyond the widening income and wealth gaps, everyday Americans are dealing with the consequences of the high degree of uncertainty created by President Trump’s actions. Newly announced tariffs were high and across the board on “Liberation Day” in April, then they were suspended, then some were negotiated lower while others were raised arbitrarily. There was a trade war and then one year truce with China. This kind of uncertainty does not encourage companies to invest, hire workers, or pay better wages (Andrade et al. 2025).
The stock market boom may garner much press and presidential attention – but only roughly 60% of Americans own shares – and most lower-income Americans do not own much or any stock. The vast majority of market gains have accrued to the richest Americans.
Further, regardless of all the hype about AI, its current economic effect largely has been capital spending on data centres and chips. This spending creates good jobs for some workers, but the resulting infrastructure is highly automated and likely will only employ 100 people per data centre. For many companies, near-term applications of AI primarily will be for automation – meaning fewer jobs. Further, the power demands from all those data centres is pushing up electricity costs across the country.
Frustration with inequality, a sense of being ‘left behind’, and polarisation played a role in the election of Donald Trump in 2016 and again in 2024. Though it ended during the traumatic experience of COVID, the first Trump administration had done little to reduce inequality and broadly share opportunity. President Trump came to office a second time much more prepared, with policies he was determined to implement. On the economic front, though, these policies seem more likely to deliver additional frustration and disappointment for most Americans.
See original post for references
The underlying assumption here is that the US has “free and fair” elections. I would say that is a big stretch.
When money is free speech and political bribery is formalized and legal, one could dismiss US democracy as a lucrative PR stunt. The MassMediaCartel dictate public discourse, they tell “voters” what to think about, how to think about it and when to think about it. The DT has been in headline news almost every day for years.
The winner-takes-all (fptp) electoral system results in minority rule anyway. Roughly 50% of the adult population either choose not to vote, or are not eligible to vote that often means that less than 25% of the adult population determine who the POTUS is. Add the Electoral College to that mix and we have more minority rule.
We see the current POTUS accepting bribes, Congress members and even SCOTUS members (er “donations”) that one would think are somehow illegal, or even a form of treason. Accepting 10s of millions from Gulf states, Israeli oligarch (let alone US oligarchs) is somehow a normal part of the democratic process I guess.
Frustration at lack of meaningful choice, decades of worsening economic polarization, inequality, declining quality of life, affordability crisis, increasing destruction of personal rights and freedoms, increasing lawlessness without due process etc. are pertinent factors. The desperate electorate have nowhere to turn.
Many very intelligent and informed people who I have much respect for (Andrei Martyanov, Col. Lawrence Wilkerson, Col. Douglas Macgregor, Larry Johnson, Paul Craig Roberts, and others) say they voted for him largely due to what he promised and the other person was even worse. To their credit they see that they were BSed and conned (by a serial liar and conman) and that he has broken his promises and his administration is incompetent, reckless and embarrassing.
With that, perhaps US folk will be a bit more politically savvy and vote 3rd party or boycott the sham elections. The midterms will likely see the D faction prevail. If history is any guide, conditions will worsen no matter which bunch of bribed and corrupt pollitricksters are put in office. The rot starts at the head and all that.
Sorry, I see your claim as major misreading or projection.
Trump won on his promise to tackle inflation and to stop/reduce illegal immigraiton. He did exceptionally well for a Republican among blacks and Hispanics. He also won, as he did in 2016, despite spending less than his Democrat opponent. See for instance: https://www.axios.com/2024/10/31/democrats-republicans-ad-spending-election-day
That’s not what I’m talking about. I just don’t see any meaningful choice in US politics, and I see levels of institutional corruption that negate any line of significant democratic accountability. The electorate vote for whomever the oligarch-owned mass media present to them as “electable” and the packs of lies are usually not challenged. Why do people vote for serially mendacious and corrupt politicians who break their promises? Why do people willingly act against their own interests? Desperation? Lack of choice? That’s the big question. I think we agree that there is something seriously wrong with US democracy. If not, people deserve what they are getting because that is what they supposedly voted for.
Or perhaps I’m just too angry and disgusted with current events…
You opened with an attack on the post that you did not and still have not substantiated it because this comment seems to reflect you having been somehow triggered: “The underlying assumption here is that the US has “free and fair” elections. I would say that is a big stretch.”
I come down hard on misreading/misreportings of posts because they then distort how later readers respond.
I did include several points to back it up: FPTP electoral system, Electoral college, oligarchy, media oligopoly, legal bribery, lack of meaningful choice etc. I would have though that you agree. Perhaps we are hair-splitting.
The late prof Sheldon Woilin’s concept of inverted totalitarianism (Democracy Inc. 2017) lays out a strong case for managed PR democracy. Just because we have elections, does not mean they are meaningful or fair. I said it was a stretch, not totally absent. Some other commenters here (David in Friday Harbor for example) have mentioned this as well.
Apparently I’m not the only one with such a pessimistic viewpoint on this: Max Blumenthal called US democracy “a farce” recently. Chris Hedges has written quite a bit about it over the years as well. And of course Ralph Nader (love or loathe him) has been talking about these issues for years.
However, I can understand why questioning US democracy pisses people off. We have been taught from day one that US democracy is a given and that it is the best in the world. (depending on the definition)
This is not what the post was about, FFS. You continue to fail to connect these issues to your opening attack on the points the post made. This site is about promoting critical thinking. You are exhbiting the fallacy Lambert often talked about, of complaining that a book was not about penguins.
Hearst and Pulitzer were around decades before the boob tube. Honest Abe imprisoned disagreeable members of the press.
Obama, the most successful brand in American history, did the same bait and switch, promising change you can believe in then protecting Wall Street criminals, jacking up health care costs, and bombing and killing at will in multiple countries. This is why presidential elections are theatrical performances that mask the oligarchic powers that control the U.S.
Great summation of the Trump administration’s “accomplishments” so far. It’s all downhill from here.
The US has had an implicit social contract with the world for the last few decades. The US agreed to buy manufactured goods from all over the world and pay for them with debt and asset sales. Trump broke the contract when he tried to bully the world with tariffs in some Trumpian attempt to rebuild America’s manufacturing. His plan started with his first term when it was “easy” to win a trade war and then went full school-yard with Liberation Day.
Here’s the trick, the US has been running trade deficits, for about 50 years, not because the world covets the US dollar but because it was good deal for US trading partners. Foreign buying of US debt and assets to fund the US trade deficit, also kept the US dollar high and made it harder for the US to compete globally. Now with the social contract broken and a revitalized US manufacturing a distant dream, foreigners either want a better return on holding US debt and assets or are unloading their holdings, unless they are getting spectacular returns – like the AI boom/bubble. This means a combination of falling dollar, higher interest rates and greater inflation, while keeping the stock market zooming In essence a new form of American exceptionalism.
If Trump gets his goal of lower domestic interest rates, it will probably manifest in lower prices for US Federal debt, a push back to increase interest rates, and downward pressure on the dollar – all leading to higher inflation. If we look at any standard economic model where a country has a large trade deficit, it leads to downward pressure on the currency and production costs until the country can become competitive with its trading partners. I don’t see that being very popular with the average American.
Michael Hudson has repeatedly written that the US trade current account deficit is the same size as the US foreign expenditure attributable to US overseas military bases, sustainment, operations etc. So, crudely, foreign purchases of US assets and government debt are funding US hegemony – and the US gets to print its debt! So Johnny Foreigner is sustaining the Empire in exchanging for IOU’s.
In imposing tariffs on US consumers in order to reduce the US trade component of the deficit, Trump is essentially forcing the US voter *to pay for Empire*. When that bill arrives, it really won’t be popular. Guns, not butter, for the first time in US history since WW2.
Obviously the plan was/is also to cover some of the costs of Empire with:
– energy revenues from US oil and LNG (Hi Europe!)
– looted industry (Hi Europe, again)
– seizure of foreign commodity wealth (Hi Ukraine, Venezuela and, ballsiest of all, Russia etc).
The last plan is not working out too well so the burden of Empire is falling on the US and EU voter.
Of course, there is no actual reduction in the US budget deficit happening. Any headroom created by tariffs, energy exports and the like is in fact just paying for an increased bezzle by the US 1%.
All of the criticisms of the Trump administration seem reasonable to me except the one about interest rates — I would have thought that the experience of the past decade or so would have demonstrated that higher interest rates only benefit coupon clippers. The premise that there is any mechanistic connection between them and inflation appears pretty shaky. Mind you, lower interest rates help asset holders as well, so maybe a “heads they win tails you lose” scenario? In any event I am unimpressed by the assertion that central bank independence is sacrosanct.
Legendary coupon clippers are largely people who keep big portion of retirement funds in “fixed income”, i.e. middle class, fortunes are made with leverage etc, or indirect leverage: artificial affordability of housing bringing profits to investors in subsequently unaffordable housing and other forms of asset inflation.
Setting interest rates is a delicate issue, not “low rates are good, higher rates are worse”.
Seems that the rate controlled by the Fed (and most rates are controlled by markets) are 1-2% after subtracting inflation, the period of zero to negative rates resulted in explosion of real estate prices, and now in many areas, it is a bitter fruits for owners and potential buyers.