In a comeback for the ages, the United States elected Donald Trump as its 47th President. His path to redemption seemed unlikely when he left office just four years ago, having faced two impeachments and multiple criminal indictments for issues related to handling classified information, falsifying business records, obstructing an official proceeding, and racketeering, to name a few challenges. Additionally, he faced two civil lawsuits in New York, including one for fraud and another for sexual assault, resulting in over $500 million in fines. He left office with a dismal 34% approval rating. Despite these setbacks, Americans largely dismissed these controversies, and he won convincingly, securing both the Electoral College and the popular vote. His coalition included gains among Black men, Hispanics, white voters, union members, women, younger voters, and independents. Republicans also won the Senate and, it appears, the House as well. Unlike the inexperienced start of the first term mired under a cloud of Russian collusion, this iteration of the Trump presidency will likely hit the ground running. Much like Hollywood, the sequel is set to land with a bigger splash and a lot more action. Fortunately, we’ve seen the original and know what to expect.
The Good
Many consider the first three years of Trump’s presidency to have been an economic success. His pandemic response, while relevant, does little to inform us about what his second term will look like unless another unprecedented crisis emerges. Focusing on his first three years, we saw inflation-adjusted GDP rise at a 2.8% annualized rate, unemployment fall from 4.7% to 3.5%, and real median income increase by 8.2%. Despite his 2017 tax cuts, federal government revenue grew each year, a trend that continued under Biden. Regulatory reductions, which grew during the Obama administration, were also a hallmark of his first term, with an executive order requiring two rules to be eliminated for each new one added. The stock market soared during this period.
The Bad
Despite this positive economic environment, many viewed the day-to-day actions of the Trump White House skeptically. The President’s tweets affected market prices in unpredictable ways, making futures trading difficult. Tariff threats against China created instability across various sectors, with grains especially impacted due to fears of a tit-for-tat trade war. Some economists believe that the gains from tax reform were offset by increased costs due to protectionist policies. While trade agreements with Mexico and China were ultimately signed, the overall results were mixed. High turnover in key administration positions created an appearance of chaos and slowed progress in the executive branch. Tensions with Democrats made bipartisan agreements nearly impossible until the pandemic. The emergency spending bills passed during that time added $3.83 trillion in additional spending, not including an additional $1.9 trillion under Biden. The effects of this debt spike continue to impact the economy with unknown long-term consequences.
The Future
Trump’s election victory sent the stock market soaring, marking one of its best days in history. A stronger U.S. dollar, a falling VIX, and dropping gold prices indicated a sense of decreased economic uncertainty. It seems clear that Trump’s second term will look markedly different from both his first term and what a second term might have looked like had he faced a divided Congress and low approval ratings. He enters office with both houses of Congress in his favor, a convincing mandate, and experience with the levers of power in Washington. The opposition may attempt to block his goals, but previous efforts largely failed. Trump himself admits that he underestimated the complexity of government administration in his first term, which involved thousands of appointments. This time, his transition team began identifying candidates for key roles in government well before November 4th, creating the potential for significant initiatives. Everything from cutting entire government departments, making his tax cuts permanent, to implementing substantial tariffs is on the table. We’ll see whether partnerships with figures like Elon Musk on government streamlining, JFK on health initiatives, and support from other former critics will lead to success or failure.
Historically, the window to fully enact a president’s vision is about two years, as it’s likely he will lose one or both houses of Congress at midterm elections. By year three, the focus will shift to his potential successor. For better or worse, we are likely to see the full Trump agenda pursued with urgency. Unknowns regarding our debt trajectory, the impact of tariffs, and regulatory shifts will be revealed soon enough. Hopefully, policy communications will occur outside of Twitter, and we will see a more conventional approach. Perhaps the sequel will be a blockbuster success, but sequels often struggle to match the impact of the original. For the sake of the country, let’s hope this one proves worthwhile.
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