By Howard Schneider
WASHINGTON (Reuters) – From trade wars to tax cuts, from ultra-low unemployment to high stock exchange records and a high-volume feud with his own Federal Reserve chief, President Donald Trump took the US economy for a ride wild before the coronavirus pushed him off a cliff.
How to summarize?
The answer in February 2020 would be different from the answer today. A year ago, the United States economy seemed to have settled into an ideal point of steady growth, low unemployment, low inflation and, finally, rising wages. Trump may have hated the Fed, but in the end the Republican president and the U.S. central bank reached a truce that maintained a decade of accelerated growth and pushed the unemployment rate to a 50-year low.
The pandemic has changed all that and is likely to leave deep economic scars. Here’s what stands out:
The Trump years: labor market https://graphics.reuters.com/USA-ECONOMY/TRUMP/dgkvlkwrlpb/chart.png
RELATIONSHIP OF EMPLOYMENT FOR THE POPULATION
Broader than the unemployment rate, the statistic captures the number of people not only unemployed and looking for, but who have also left the workforce, a particular concern during the pandemic. He had been improving steadily and continued to improve with Trump – until March 2020.
“You see him collapse with the virus shutdown and recover at a rapid pace and then stop,” said Austan Goolsbee, chairman of the Council of Economic Advisers of former President Barack Obama and professor of economics at the University of Booth School. Chicago business. “This basically describes the trajectory of the economy. The biggest cause is obvious. The furious and out-of-control nature of the virus, which is absolutely linked to horrible policy errors and oversight.”
The Trump years: interest rates https://graphics.reuters.com/USA-ECONOMY/TRUMP/xlbvgygaavq/chart.png
FEDERAL FUND RATE
The history of the Trump years can also be seen in the Fed’s benchmark overnight interest rate, also known as the federal funds rate, which increased as tax cuts and deficit spending led to higher-than-expected economic growth, reduced during a trade war started to reduce global trade and dropped to almost zero when the pandemic hit.
Trump vehemently complained about the Fed’s rate hikes and may be right. The central bank, for its own reasons, ended up finding its own low-rate religion that cares less about inflation and “overheating” and is unlikely to raise rates again for long.
The Fed’s new policy strategy in August 2020 means that “they look back implicitly and see the magnitude of rate hikes in 2017-2018 as a mistake,” said Jason Thomas, head of research at the Carlyle Group. “They were victims of the models … What we are seeing now at the Fed is an effort not to fall into the same trap.”
The Trump years: trade wars https://graphics.reuters.com/USA-ECONOMY/TRUMP/rlgpdglmzvo/chart.png
COMMERCIAL WARS
The seeds of “deglobalization” may have been planted well before Trump’s victory in the 2016 elections and, as the Brexit debate showed, he was not the only politician to exploit the sentiment.
But his willingness to use unilateral tariffs and fight not only with opponents like China, but also with ostentatious allies like Germany has shaken the world trade order. He ended his term with a record US trade deficit, inevitable perhaps due to the pandemic. But some of his concerns were shared by other countries, for example, about China’s poor enforcement of intellectual property rules.
With not just trade, but also climate change and other issues on the world agenda and President-elect Joe Biden, “a discussion that is more multilateral than bilateral can make more progress,” said Raghuram Rajan, former head of the Bank Central India and a finance professor from Booth. “Make the trade in simple and simple things work again … The difficult areas can be put on a separate path … China should not feel that it is being cornered.”
The Trump Years: Stocks https://graphics.reuters.com/USA-ECONOMY/TRUMP/jbyvrnrjdve/chart.png
THE STEEL MARKET
Trump treated the stock market as a scorecard for his presidency, setting new records in tweets and blaming the Fed for any fall, among other alleged villains.
Consider this a story in two chapters, however. Before the pandemic, the combination of corporate tax cuts and Trump deregulation, coupled with continued economic growth, fueled profits and stock prices. After the pandemic, it is less clear why stocks are overburdened, but the Fed’s promise of low interest rates for many years and a flood of pandemic aid to the economy play an important role.
“Trump was unusual in linking his policies and interpretations of his policies to” stock prices, said Randall Kroszner, a former Fed governor who is now Professor of Booth and vice president. “Now people are concerned about the Fed’s actions and the expected stimulus is taking markets to levels that cannot be sustained … but it says something about the progress of the US economy, fiscal changes, regulatory changes.”
The Trump years: government debt https://graphics.reuters.com/USA-ECONOMY/TRUMP/qzjpqmerzpx/chart.png
So it was, after all, the biggest economy in the history of the United States?
As with many things about Trump, it depends on who is being questioned. It also depends on whether the frame of reference is related to short-term results or long-term sustainability issues – such as the record level of accumulated public debt to finance tax cuts and pandemic relief – or justice, or the quality of public goods like the environment.
For Democrats, at least, attitudes to the economy improved markedly after Biden’s victory in the November 3 election. For Republicans, the climate has soured.
Expectations changed after the recent two elections https://graphics.reuters.com/USA-ECONOMY/SENTIMENT/dgkplkxmxvb/chart.png
(Reporting by Howard Schneider; Editing by Dan Burns and Paul Simao)