How has Trump’s election affected the US economy?
1) Introduction
After Brexit, the modern world has faced a new shocking event- the election of Donald Trump for POTUS… until the last moment, no one believed that this is possible-almost all establishments were against him and they truly mocked him and considered him as an unqualified loser. But he surprised everyone, even his most dedicated supporters, and won an electoral victory after victory until he defeated Hillary Clinton on the election day- the event that most observers described as one of the most shocking events in the history of presidential elections in the USA. Some of his formidable opponents sincerely believed that this would be a doom day for both the USA and the world.
During his election campaign, he promised a bold and decisive change that will turn “America great again”, he promised to reduce taxes for everyone (working people and private corporations), reduce effective regulations, transfer the production back in the USA, put new trade tariffs to China, if the USA doesn’t receive a better trade deal with the Red Dragon.
Three years later, in the present circumstances, we get a better picture of Trump’s economic policy and what is the impact on the economy of the USA. Does his policy of “America first” turn the USA into “America great again” or his effective strategy proved an utter failure?
2) Current and future economic trends of the USA
-EUR/USD
The most popular pair of currencies in the world. This is a reliable indicator to mark what is the performance of the almighty dollar and the current president strengthened or weakened the U.S. dollar.
As we examine the graphic above[1], in the short term after the election, the dollar became stronger, but the euro crashed the dollar later and the highest point was at the beginning of 2018. After this, the USD took the upper hand against the European currency but still didn’t reach the levels of election day in 2016. In November 2016 EUR/USD was trading for 1.0588[2] and now, in January 2020, the trading is at 1.1143 or EUR is more expensive with 5.24%. With the equivalent amount, the American dollar has become weaker.
-S&P 500
The S&P 500 or Standard & Poor’s 500 Index is a market-capitalization-weighted index of the 500 largest U.S. publicly traded companies. The index is widely regarded as the best gauge of large-cap U.S. equities and represents what is the economic condition of the stock market in the USA.
As we can undoubtedly see, the election and the presidency of Trump naturally strengthen the USA’s Stock market and especially S&P 500[3]. In November 2016(official election results), S&P was open at $2.198.81[4], now a little more than three years, in January 2020, the index is traded for $3.245.30 or a market increase of 47.63 %.
Defiantly, the stock market loves Trump.
-GDP
From 18707.19 billion US dollars in 2016 to 20494.1 in 2018. The economy is progressively expanding and instantly confirms the results from the Stock market. The absolute increase is 8.71% which is not bad for two years.
-Annual growth
We have mixed signals-in 2016(presidential election year) we undoubtedly had one of the lowest annual growths from 2011 with only 1.6% (1% annual growth or below is a sign of economic stagnation). After the election, we have enjoyed the results-the economy expands with 2.4% in 2017 and 2.9% in 2018(the highest increase in the last twelve months), but in 2019, the economy is slowing down with 2.4% and IMF predicted that the economy will expand with 2.1% in 2020, 1.7% in 2021 and 1.6% in 2022.[5]
The economy is slowing down-the main reason and suspect are the trade wars, as both IMF and The World Bank had cautioned us.
-Unemployment rate
As we can see, the unemployment rate is decreasing constantly-from nearly 10% in 2010, in December 2019 we had 3.5%- one of the lowest unemployment rates in the history of the USA. Technically speaking, the lowest one was in May 1953 with 2.5% and we are close to achieving this level.
We can argue, does this decrease in unemployment is because of Trump or not because the trend is from 2011, but Trump can brag that we have one of the lowest points of unemployment.
-Debt to GDP
Sadly, the Debt to GDP ratio is continuing to increase, reaching 106.1%. It doesn’t matter who is the president of the USA or who controls the Senate House or the Congress-the Debt is constantly growing.
Historically, the highest one was in 1946 with 118.90% which will be reached in the next 4–5 years if the trend continues. How much debt can take the USA without putting the economy at the risk? This is the question, that many economists are arguing…but everything over 100 % is considered dangerous.
-Government budget
With this constant increase of the debt, it is not a considerable surprise that the government is in the permanent financial deficit (government spends more money than they collect) … and the presidency of Trump improved nothing. From 2010, the good news was that the deficit was decreasing every year reaching 2.4% in 2015, but from 2016, the deficit is constantly increasing-3.2% in 2016, 3.5% in 2017, and 3.8% in 2018.
From the historical point of view, the average deficit (1946–2018) was -2.5%, so now is dangerously higher. Not so high as 2010(8.7%), 2011(8.5%) or 2012(6.8), but with Debt to GDP over 100%… it can reach a critical level.
-GDP per Capita
From 2010, GDP per capita is increasing constantly and the election of the new president altered nothing, reaching a historically high $54,541 in 2018. The growth of the economy and historically low unemployment can reveal to us why GDP per capita is going rapidly.
If there are no current crises or recession, we can expect this upward trend to extend in the next years too.
-Median weakly earning
Median weekly earning is growing, reaching the highest point in 1Q 2019($898)[6], much higher than 1Q 2019 ($732) or an increase of 22.67% from 2009. We can expect this to increase in the future too if we don’t suffer a crucial negative event.
-Inflation rate
After Trump’s election, inflation is rising, but it is not dangerously high-in December 2019, the inflation was 2.1%. Many economists believe that moderate inflation is healthy for one modern economy. Currently, everything looks under control. For a more limited period (2011), the inflation was close to 4% but now is on the track.
-Credit rating
The USA has the highest possible credit rating (except for S&P[7], which downgraded the credit rating of the USA in 2011). The presidency of Trump improved nothing in terms of credit rating.
Some economists are arguing that this is a more political decision rather than a tangible fact because of the permanent deficit of the government and the higher debt to GDP ratio.
- Doing business rank
We have mixed signals in comparison with 2010, the USA lost several positions, but if we compare from the worst place in 2016(8th position), during the Trump, The USA went higher- 6th position (2019 and in the newest report 2020).
With the ambitious policies of Trump to deregulate the economy to give to both businesses and entrepreneurs more economic freedom…we expected more.
The most key issues with doing business rank are several. Launching a business in the USA is expensive and slow in comparison with other countries-for this reason, The USA is in 55th place[8], beaten by countries like Jamaica (6 place), Uzbekistan (8 place), Armenia(10 place)… even countries like Greece(notoriously famous for its massive bureaucracy) and Kosovo beat the USA according to the World Bank.
If you establish a business in the USA, you will need six procedures (average in the OECD countries is 4.9), four days (average in the OECD countries is 6.9), and 1.2% of income per capita.
In comparison with the USA, in New Zealand, you will need only one procedure, a half-day, and almost 0.1% of income per capita.
In other criteria of the World Bank, the USA is not performing well-getting electricity (64 place), registering properties (39 place) … on the other hand, in other criteria like getting credit (4 place) and resolving insolvency (2nd place), the performance of the USA is excellent.
-Productivity
Another leading indicator of the health factor of one economy is the level of productivity. At this moment, there is no doubt, productivity is rising with the highest percentage from 2010. This explains why the income of the people is rising and why the unemployment level is so low.
One of the reasons can be the tax cuts that Trump introduced to the citizens, including ordinary workers and corporations, which reduces the taxes to everyone.
-FDI in trillion in U.S. Dollars
It doesn’t matter who is the president, who controls the Senate House or the Congress, the FDI in the USA is constantly increasing every year, reaching 4.34 trillion U.S. Dollars[9] in 2018-the highest reach in history.
A curious fact is that the only(slight) decrease was in 2002 and even the world economic crisis (2007–2008) didn’t change the trend at all. The capitals are flowing in the USA, and we can expect this trend to follow in the next years.
-Trade Balance
After the Election of Trump, one of his most tremendous promises was to decrease the trade deficits with other countries. The last time, when the USA has a surplus trade balance was in 1975… at the beginning of the 1980s, the trade deficit was constant. Therefore, let’s examine, did Trump deliver his promises?
During his rule, The USA has one of the highest trade deficits in its history, 739.410 billion (2017), -847.813 billion, and -779.225 billion (2019), much higher in comparison with 2010.
Many economists suggested that all this trade war, economic sanctions, and tariff war backfired.
In the current years, it is impossible to put an end to the trade deficit.
If we analyze both imports and exports-they confirm this, because of trade wars, both imports and exports fall in comparison with the previous year.
-Trade balance with China
We have mixed signals. On one hand, the deficit with China is increasing constantly reaching a new height in 2018(-419.527) [11] during Trump, but if we analyze the last year (2019) we see an interesting result-we have the lowest trade deficit with China from 2013. It will be genuinely fascinating to see the results for 2020 and 2021. If the trade deficit decreases too, we can say that some policies of Trump are working. But with a so tremendous deficit, we can’t expect to be balanced in recent years.
-Government Bond 10Y
3) Conclusion
We are at the end of this article- can we declare Mr. Trump as one of the most successful POTUS (as he brags himself all the time) or not?
Did he deliver the results that he promised (record annual growth, no unemployment, stopping the trade deficit…)? Well, it is not remarkably simple, there are areas where the good performance is noticeable- for example, the Stock Market and investors love Trump absolutely. From the moment of his election victory until now, we have a whopping 47.63% increase in S&P 500; we have a record unemployment rate of 3.5% with trends to reach the lowest in the history of the USA (2.5%); GDP per capita and weekly median household income are rising too, achieving the highest level in the history, the FDI is increasing to 4.34 trillion in U.S. Dollars, the bond yield (10 years) has possessed one of the lowest points since 2013… on the other hand, we experience events that show us a completely different picture-since the election results, the euro is more expansive to the dollar with 5.24% (the dollar became weaker), the economy is slowing down, expecting to reach 1.7% in 2020 and 1.6% in 2021, despite the higher growth at the beginning of his rule-the main factor for this is the trade wars; Debt to GDP and budget deficit are increasing too, too close to reach the highest debt ratio in the history of the USA, despite his promises and bragging, the USA is losing the trade war with China and the trade deficit is highest in the history (there was a change in 2019, but American exports are falling too).
One thing is a certain-the second mandate of Trump will be interesting and it will demonstrate the results of his economic policy.
Source:
[1]https://www.tradingview.com/symbols/EURUSD/ available 01/2020
[2]https://www.investing.com/currencies/eur-usd-historical-data available 01/2020
[3]https://www.tradingview.com/symbols/SPX/ available 01/2020
[4]https://www.investing.com/indices/us-spx-500-historical-data available 01/2020
[5]https://www.imf.org/external/datamapper/NGDP_RPCH@WEO/USA available 01/2020
[6]https://data.bls.gov/pdq/SurveyOutputServlet LES1252881500 available 01/2020
[7]http://www.worldgovernmentbonds.com/credit-rating/united-states/ available 01/2020
[8]https://www.doingbusiness.org/en/data/exploreeconomies/united-states available 01/2020
[9]https://www.statista.com/statistics/188870/foreign-direct-investment-in-the-united-states-since-1990/ available 01/2020
[10]https://www.census.gov/foreign-trade/balance/c0004.html available 01/2020
[11]https://www.census.gov/foreign-trade/balance/c5700.html available 01/2020
