US presidential election: for Trump, a mixed economic record

During his presidency and during his campaign for his re-election, Donald Trump repeated it dozens of times. With him at the helm, the US economy “has never been so strong in the history of the country,” he argued during the first presidential debate between him and Joe Biden.

At the start of the year, the number 1 argument for extending his lease in the Oval Office had been found: relentlessly recalling a few flattering figures, particularly on employment, and thus making his famous pike addressed to George H. Bush by James Carville, Bill Clinton’s advisor: “It’s the economy, stupid! “(” It’s the economy that counts, idiot! “). In the meantime, a huge stick has slipped into the wheels of the economic machine developed by the Trump administration: the Covid-19 pandemic with its cohort of catastrophic effects.

Even before the outbreak of the coronavirus, was this mandate as flamboyant a success as Donald Trump claims on the economic front? In reality, it is a mixed record that emerges, between heavy deficits inflating a huge debt and unemployment having reached a historically low level.

As early as June 15, 2015, the day he announced his candidacy for the Republican presidency, Trump had set the scene by assuring that he would be “the best president for the job that God has ever created”. The bar was arguably a little too high, but the US president was able to boast a very low unemployment rate for a long time before the coronavirus robbed millions of Americans of their jobs.

A historically low unemployment rate

At the start of 2020, it was 3.5%, unheard of since the end of the post-war boom and enough to make people envious in most other countries. Impressive in itself, this figure should be put in perspective compared to when Trump arrived at the White House. “In January 2017, this rate was only 4.7%, recalls Isabelle Lebon, professor of economics at Caen Normandie University. The United States was already, so to speak, in a position of full employment. It’s not at all like he arrived with 10% unemployment. “

The finding is roughly the same when we look at the growth of the US economy. Donald Trump promised that she would reach the “4, 5 or maybe even 6%”? On average, the US GDP actually increased by 2.5% between 2017 and 2019. Positive as such, the performance appears less exceptional when compared to the 2.3% growth on average during the four years of the Obama’s second term.

“After the subprime mortgage crisis, the recovery was in fact already underway since 2010. Trump continued an existing momentum. We can at least recognize him for not having broken it, at least until last March, ”explains Christophe Blot, economist at OFCE (French Observatory of Economic Conjunctures).

To collect his good numbers, Trump applied a recipe: relaunch, relaunch and again, at the risk of overheating. Rather than increased spending, it has gone through colossal tax cuts for individuals and businesses. With the “Tax Cuts and Jobs Act”, the flagship reform of his presidency, the federal corporate tax rate has fallen from 35% to 21%.

Debt on the rise

With this text, American households have on average seen their income tax drop by 8%. It is especially the better-off who have benefited from this rebate. According to Congress, the richest 1% were able to save $ 60 billion last year, the same amount as the tax kickback for most Americans, those who earn between $ 20,000 and $ 100,000. The poorest hardly saw the color. “This tax reform has clearly contributed to the widening of inequalities, even if they were already on an unfavorable trajectory”, remarks Isabelle Lebon.

With such a reform, presenting a balanced budget was an impossible task. These successive deficits have been the water to feed the debt mill. Higher than the amount of GDP at the start of the year, the public debt of the United States has soared this year with the billions of dollars of the stimulus plan to counter the effects of the Covid-19 pandemic. Today it amounts to more than 26 trillion dollars, or about 135% of gross domestic product. The assurance given by candidate Trump of get rid of all debt in just eight years never seemed so unreliable.

Despite this pharaonic amount, “the debt is not at the heart of concerns on the side of Biden as that of Trump”, notes Christophe Blot. For the economist, there are two good reasons for this: “Unlike the countries of the euro zone, the United States has its own central bank and it is easier to coordinate with the choices made by the government. The other key factor is the fact that the dollar remains the international currency of reference. Demand remains very strong to buy US debt. “

The results obtained by Trump are also not very conclusive on one of the other strong markers of his economic rhetoric: the return of industries to American soil. Four years ago, the subject was no stranger to its good scores obtained with workers in key states of the “Rust Belt”, the industrial region of the country.

Some relocations have taken place, but they are not a major phenomenon. “The share of manufacturing jobs has remained stable over the past three years,” notes Christophe Blot, adding that it is anyway too early to judge the success or failure of Trump’s policy on this point. “The decline in industrial employment has been a trend since the 1970s, it will not be reversed overnight. “

Relocations are long overdue

The protectionist measures taken to rebalance the trade balance, on the other hand, saw the light of day, between the renegotiation of the NAFTA, the free trade agreement concluded with Canada and Mexico in the 1990s, and the standoff with Beijing. This trade war, which led to the signing of a preliminary agreement between China and the United States at the start of the year, notably saw Washington impose punitive tariffs to limit imports of Chinese goods.

This tough policy had several side effects. Often, it is American households that have found themselves buying more expensive imported products. China also did not stand idly by and in turn heavily taxed US imports. “This was a very serious blow to farmers in the United States, in particular soybean producers,” says Isabelle Lebon. The majority of American soybeans went to China, and Beijing turned to other markets. “

The consequences of Trump’s aggressive trade deficit policy – the difference between the value of exports and that of imports – may not be commensurate with what he expected. Admittedly, this deficit fell slightly in 2019 for the first time in six years. We must not forget, however, that it had increased by 22% between 2016 and 2019.

Having completed this assessment, can we imagine Trump pursuing the same economic policy in the event of re-election? Whether he wins or is defeated by Joe Biden, the priority should be new stimulus measures to respond to the coronavirus crisis. The contours of a second term for Trump would also depend on the Republicans’ ability to keep control of the Senate while Democrats are almost guaranteed to remain in the majority in the House of Representatives. “If he loses the upper house, he will have to negotiate each text, each extension of the debt, piecemeal,” says Isabelle Lebon. On fiscal and budgetary matters, its room for maneuver will be roughly zero. “

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