The Enduring Legacy of the Trump Economy: Lessons for the Future

The Trump economy, which spanned from 2017 to 2021, has left an indelible mark on the minds of many Americans. With low inflation, interest rates, and gasoline prices, coupled with a thriving stock market and solid pre-COVID job and economic growth, the Trump era was a time of relative economic prosperity. As the 2024 election approaches, the legacy of the Trump economy has become a significant factor, with voters placing their trust in the Republican presidential candidate, former President Donald Trump, to steer the nation's economic course.

Navigating the Complexities of the Post-COVID Economy

Inflation: A Persistent Challenge

The surge in prices since 2021 has been a significant economic vulnerability for the Biden administration. However, it's important to recognize that Trump's policies did not play a significant role in keeping inflation low during his tenure. Aside from occasional spikes in energy prices, the United States experienced a prolonged period of low inflation from 1990 to 2021. This stability was largely attributed to the forces of globalization and the influx of cheap imports from China. Trump's trade wars during his first term, which imposed tariffs on imports, began to erode this deflationary buffer. The Biden administration has maintained these tariffs, and both Democrats and Republicans now advocate for a tougher stance on China and a renewed emphasis on domestic manufacturing. While this shift could benefit the U.S. economy in the long run, it also means that the built-in hedge against inflation that existed during the peak of globalization is no longer as robust. As a result, the cost pressures facing the economy are likely to persist, putting a higher floor under prices for many goods and services.

Interest Rates: Navigating the New Normal

The period from 2009 to 2021 was characterized by abnormally low interest rates, with the Federal Reserve slashing short-term rates to near-zero levels during the Great Recession and the COVID-19 pandemic. Consumers grew accustomed to these super-low rates, but this era was an outlier compared to the historical norm. From 1990 to 2008, the Fed's short-term rate averaged 4.25%, while from 2009 to 2021, the average was just 0.52%. Similarly, the average 30-year fixed mortgage rate was 7.3% from 1990 to 2008, but only 4% from 2009 to 2021. Even with the recent rate hikes, mortgage rates around 6.4% are still below the historical average. However, the stronger inflationary pressures in the current economic landscape are likely to prevent the Fed from cutting rates to the levels seen during the decade following the Great Recession. As the economy navigates this new normal, consumers and businesses will need to adapt to a higher interest rate environment.

Gasoline Prices: The Volatility of Energy Markets

During Trump's presidency, gas prices averaged $2.57 per gallon, compared to $3.60 so far under Biden. Even when adjusted for inflation, gas prices were more affordable under Trump. However, this was not due to any specific policy actions taken by the former president. Instead, it was a result of the fracking boom and overproduction by energy providers around the world, which pushed prices to unusually low levels. When the COVID-19 pandemic hit in 2020, energy profits collapsed, and the industry went through a significant shakeout. The aftermath of this crisis has led energy firms and their investors to prioritize profitability and "capital discipline" over market share, regardless of who occupies the White House. As a result, even if Trump were to return to the presidency, it is unlikely that his administration would be able to significantly influence domestic energy production and, consequently, gasoline prices.

Economic Growth: Navigating the Shifting Landscape

While Trump has claimed that he presided over the "best economy in the history of our country," the data tells a more nuanced story. In reality, the economic growth during Trump's pre-COVID term was comparable to that of Obama's second term, with real GDP growth averaging 2.8% per quarter under Trump, compared to 2.5% under Obama. The COVID-19 pandemic, however, disrupted this trajectory, and the subsequent recovery has been uneven. Under Biden, GDP growth has averaged a stronger 3% per quarter, but higher inflation and interest rates have more than offset this in the minds of many voters. The lingering effects of the pandemic, coupled with the changing dynamics of the global economy, have created a new set of challenges that will likely persist regardless of who occupies the Oval Office in 2024.The enduring legacy of the Trump economy is a complex and multifaceted one. While the relative economic prosperity of his first term may have left a positive impression on many Americans, the realities of the post-COVID landscape suggest that a return to the "Goldilocks economy" of that era is unlikely, regardless of who wins the 2024 election. As the nation navigates the shifting economic terrain, it will be crucial for policymakers and voters to approach the challenges with a clear-eyed understanding of the underlying forces shaping the economy, rather than relying on nostalgic memories or partisan rhetoric.