The Trump economy is delivering growth and investment in artificial intelligence, rising real wages and booming stock prices and retirement account balances — yet many voters are unhappy.
Voter discontent threatens the GOP House majority in the midterm elections — but not President Trump’s legacy.
House Democrats could subject ICE activities to tougher scrutiny and guardrails, but couldn’t too much limit its funding. Senate Republican would have the president’s back.
Wary of their own electoral hides, the polls should tell them that dissatisfaction with the president stems more strongly from persistent inflation than how he deals with immigrants.
Senate Democrats wouldn’t have the votes to repeal his tax and spending cuts, and only about half of the Trump tariffs are subject to the current challenge in the Supreme Court.
If inflation winds down and the jobs market improves by summer, House Republicans have a fighting chance.
But don’t count on that posse arriving.
Trump’s personal and business income tax cuts and new net spending increase the federal budget deficit just a bit more than his tariffs potentially reduce it.
But the economy doesn’t need more juice — after a tough 1st quarter last year, it has been growing at better than 4%.
A new Federal Reserve chairman may seek lower interest rates but be frustrated.
Since September 2024, the Fed has cut the federal funds rate—the rate banks charge each other for overnight loans—1.75%.
But the bellwether 10-year Treasury rate, which is the benchmark for many business loans and mortgages, is up about 0.5%.
The culprit is big federal deficits.
Those have increased from 3.1% of GDP in 2016 to about 6% this year.
The Treasury’s borrowing needs tax the capacity of domestic and international capital markets, at a time when China, Japan and EU are borrowing more, too. Hence, investors can demand higher long-term interest rates.
If Trump wants lower interest rates, Congress needs to raise taxes or cut spending and borrow less.
Even with lower interest rates, his tariffs and immigration policies pose near-term issues.
The tariffs are hurting American farmers — higher prices for fertilizer, equipment and other farm essentials, while China retaliates by cutting purchases of American soybeans by half.
It’s sourcing more farm products more from Brazil and Argentina to insulate itself.
We hear a lot about tariffs disrupting supply chains, but so do other taxes when those significantly change.
Governments must be funded and with the modern social safety, broad-based revenue sources like income and sales taxes are facts of life, unless a government sits on massive natural resources that are cheap to produce and it gets a cut — for example, Saudi Arabia.
The trick is to impose taxes in the least distorting way.
If tariffs are chosen, the rates should be higher on final goods than their inputs — or the same across-the-board, except perhaps for the things you can’t domestically make or grow in sufficient supply.
For Americans, that’s coffee and, increasingly, beef.
Fifty-percent tariffs on steel and aluminum and 22% tariffs on automobiles are opposite those fundamentals.
Apparently, the administration isn’t thinking strategically about tariffs.
Manufacturing construction spending — a proxy for additions to factory capacity — and employment rose in response to Biden’s industrial policies but are falling with Trump’s tariffs.
Pledges to invest billions of dollars in new factories by countries and companies like Japan and Pfizer may someday yield more jobs. But those won’t happen by November and will only materialize if leaders believe that their deals will stick.
With Supreme Court challenges putting many Trump tariffs in harm’s way, those commitments become questionable.
Trump’s immigration policies add additional constraints.
Indigenous population growth and the legal immigration that his policies permit likely allow us to add about 50,000 new workers each month.
That’s a lot less than in the past and limits growth in industries like agriculture, new home construction, health care, hospitality and high tech where immigrant workers are prominent.
In turn, that slows broader growth and pushes up unemployment throughout the economy, especially for white-collar workers recently displaced by Artificial Intelligence.
Those stranded workers would better be able to find work if Trump permitted more immigration for the kinds of workers in short supply.
Cleveland Federal Reserve Bank President Beth Hammack says she’s been hearing from business leaders that higher input costs, including tariffs, may soon impel large price increases.
This year’s economy won’t look that much different than last year’s—inflation around 3% and many college graduates either in endless job searches or fearing losing the job they have.
We all know the parties of incumbent presidents generally lose seats in Congress in midterm election—when voters are unhappy with their president, the losses magnify.
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Peter Morici is an economist and emeritus business professor at the University of Maryland, and a national columnist.
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