Trump inherits a sturdy economy
President-elect Donald Trump is poised to inherit a remarkably healthy economy when he takes office in January. By almost all measures, the U.S. economy is doing exceptionally well. Gross domestic product was up an annual 2.8% last quarter, inflation is just about down to the Federal Reserve’s target rate of 2% and unemployment is low by historic standards. So what does that mean for the incoming president and his administration?
“Marketplace” host Kai Ryssdal spoke with Greg Ip, senior economics commentator at The Wall Street Journal, about his article on why the current economy is so strong and how the economic outlook could evolve during the next president’s term. Below is an edited transcript of their conversation.
Kai Ryssdal: You say in the beginning of this piece, what’s more impressive than the economic growth that we’re having in this country is its “quality.” What does that mean?
Greg Ip: The United States has grown very rapidly in the last year, certainly much faster than most other major developed countries. And even though it’s grown rapidly, this has occurred while inflation has come down and while productivity per worker has gone up. So, this tells us that the growth is not growing by straining the economy’s capacity, which could lead to inflation. This kind of growth means the Fed can feel comfortable continuing to lower interest rates, which makes it very unlikely we’ll have a recession.
Ryssdal: And we are, you say, an outlier internationally, right? Europe and the rest of them are still struggling quite a bit.
Ip: That’s right. If you look at the last year or two, the United States has grown faster than almost all of its peer economies. When you dig into the numbers, a key reason why is because productivity has been growing faster in the United States, which seems to reflect a few intrinsic endowments that the U.S. has that others do not, like our abundant energy resources and the very strong technology sector, which can be seen in the amazing performance of companies like Nvidia and Apple.
Ryssdal: So let’s talk nuts and bolts. What does this mean? Given the news of the day, the news of last night I suppose, what does this mean practically for President-elect Trump?
Ip: Well, I think the first thing it means is that Trump basically inherits a pretty good economy. He kind of has the wind at his back. There’s really no reason to think that there’s a recession in store in the next year or two. And based on what we know now, inflation is unlikely to be a big problem. inflation seems to be on track to decline from here, and that seems to be why financial markets were relatively buoyant coming into the election.
Ryssdal: Even though, as many analysts and economists have pointed out, the policies of the president-elect do tend to be somewhat inflationary.
Ip: Yeah, so let’s take a look at how we might expect the economic outlook to change under the policies of President-elect Trump. The two main parts of his platform are higher tariffs and lower taxes. And economists will tell you that higher tariffs, all else equal, will lead to higher inflation, and that tax cuts, all else equal, will lead to more rapid economic growth and larger government deficits. And if you look at how financial markets responded to the news of the election, that’s exactly what they’re anticipating. But I think it’s very important to emphasize that we don’t actually know what’s going to happen. Trump himself has been relatively inconsistent in specifying exactly what he plans to do with respect to either tariffs or taxes, and of course, some of these proposals have to go through Congress as well, and we’re actually still waiting to find out what the full composition of Congress will be and what its preference will be.
Ryssdal: We know that presidents are unduly credited and unduly blamed for what happens in an economy. Do you see anything that will change the trajectory of the American economy?
Ip: I think that even before the election, it was fairly clear that the next decade or so will be a period where inflation pressures will be more of a problem than they were in the decade before the pandemic. Before the pandemic, inflation and interest rates were low around the world, in part because it was the long tail of the global financial crisis, which had depressed investment and demand. Well, the next 10 years I think are going to be very different. We’ve put the global financial crisis long behind us. People everywhere are worried about supply chains because of things like pandemics, things like climate change, things like geopolitical conflict, and so I think that is an environment where inflation is more likely to be a problem on the upside than the downside, and that would have been true no matter who became president. I think it basically affects how policies such as tariffs and tax cuts will be received, and I think that is a factor that President-elect Trump and his team will also have to deal with.
Stories You Might Like
There’s a lot happening in the world. Through it all, Marketplace is here for you.
You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible.
Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.
