Consequences of the Trump Presidency on the US Economy

This discussion focuses on the economic consequences of Trump’s presidency for the U.S. and its key trading partners.

There remains considerable uncertainty about the actual impact of Trump’s policies on the U.S. economy. Many of his campaign promises point toward inflationary pressures and an increase in fiscal deficits over the coming decade, though it’s still unclear which policies will ultimately be implemented.

I’ll continue to share relevant studies and provide my own assessments as we gain more clarity on the direction and effects of these policies

1 Like

According to The Committee for a Responsible Federal Budget President Trump’s plan policies would increase debt over the FY 2026 through 2035 period by a total of $7.75 trillion under the central scenario

  • Debt held by the public would rise from 102 percent of GDP at the beginning of FY 2026 to 143 percent of GDP by the end of 2035 – 18 percent of GDP above current law projections.
  • Deficits would reach 9.7 percent of GDP in 2035, with a range of 7.7 to 12.2 percent of GDP in other scenarios – the highest levels reached outside of a war or recession.


2 Likes

Trump has created the Department of Government Efficiency, led by Elon Musk and entrepreneur Vivek Ramaswamy

This is not an official department but more of an advisory role. Trump is seeking an entrepreneurial approach to Government with this.

Musk has set a goal of $2 trillion in spending cuts.

Government spending cuts are likely to exert deflationary and recessionary pressure in the short term , primarily because government expenditures and payrolls play a significant role in supporting current economic activity.

  • 2 trillion would be ~20% reduction to government spending, and represent about ~7% of GDP.

In the long term, however, these cuts would offer substantial benefits by addressing the U.S.'s challenging fiscal situation. That said, I’m skeptical about the likelihood of achieving any impactful cuts that could meaningfully alter the fiscal outlook. Here are my reasons:

  • Approximately $3.8 trillion, or about 62% of the U.S. government’s $6.1 trillion budget, is classified as mandatory spending, with the majority directed to social security programs. Reducing these would require Congressional approval, and despite the Republican majority, significant cuts to these programs are unlikely imo due to their unpopularity and the short-term negative economic impacts that would have.
  • Interest payments account for roughly $700 billion (around 11.5%) of the budget in 2023 and will likely continue to rise as existing debt is refinanced at higher interest rates. It increased to $882 billion to FY2024.
  • Of the remaining $1.7 trillion discretionary, about $800 billion is allocated to defense spending, which is an area former President Trump and others are looking to increase rather than cut.
  • This leaves around $900 billion in discretionary spending that could theoretically be reduced. However, even a 25% reduction (a high assumption since there are some important departments there) would only be $225 billion in annual savings, amounting to just 3.5% of the total budget.
  • If we see it from the employee’s side, there are about 3 million federal employees and an additional 4 million contractors. Even if 2 million jobs were cut, a drastic move that would most likely increase unemployment considerably (current unemployed count is only ~6 million), the savings would total around $400 billion per year (assuming an average cost of $200k per position), which is about 6.5% of the budget. This still falls significantly short of a $2 trillion reduction target.

In conclusion, I think potential cuts could be in the range of $100-400 billion per year, with a higher probability to be around the lower range, which would be far from improving significantly the debt situation, in FY2024 the fiscal deficit was $1.8 Trillion.

Ultimately, I believe that greater austerity is always beneficial, and we can hope that efforts to boost productivity and reduce inefficiencies in government spending will have at least some positive results. However, I doubt these measures will be sufficient to meaningfully improve the long-term U.S. debt outlook. Especially as other proposed policies, particularly the proposed tax cuts will likely offset some, all, or even exceed fiscal gains from these spending reductions.



2 Likes

Impact of potential trade tariffs proposed by Trump

Trump is leveraging the proposed tariffs (25% on Mexico and Canada, and 10% on China), in my opinion as a negotiation tool. Currently, these tariffs are not expected to be implemented (he is probably too aware of the negative consequences) but are instead being used to pressure Mexico, Canada and China to present solutions or proposals that align with his demands.

Based on his first term, we know that Trump can follow through on such threats of tariffs, making IMO these proposals more than just empty threats.

It’s also important to recognize the significantly different economic context today compared to 2016. At that time, inflation was very low, and interest rates were near zero, offering more room for maneuver. Today, inflation remains above the 2% target, with upward risks to inflation expectations, already elevated interest rates, and on top of that fiscal debt already 120% of GDP. In this environment, any additional inflationary pressure, such as that caused by tariffs, could have a much greater impact on the economy.

These 3 trading partners represent about 45% of imports into the US (1.36 Trillion in 2023). So, If put in place, these trade tariffs would have a negative impact on inflation and on economic growth. Some of the consequences of tariffs are 1,2:

  • Protectionism reduces labor efficiency and overall economic output by creating distortions in the allocation of resources.
  • Protection from foreign competition diminishes the need for domestic industries to improve, reducing long-term competitiveness and investment in innovation.
  • Protected industries, often less efficient, gain market share, reducing overall economic output and productivity.
  • Tariffs can raise prices across the economy, potentially leading to inflation unless monetary policy offsets these effects.
  • By increasing the costs of goods, tariffs could reduce consumers’ purchasing power, leading to lower spending, investment, and labor participation.
  • Tariff hikes could result in small but noticeable increases in unemployment rates. This aligns with reduced productivity and economic activity.
  • Higher tariffs often lead to real exchange rate appreciation, which can offset any potential gains from improved trade balances, making exports less competitive internationally.
  • Other countries are likely to respond with their tariffs on U.S. exports, further decreasing U.S. output and incomes.
  • Tariffs contribute to higher income inequality as they tend to benefit specific industries or groups at the expense of the broader economy.

The extent of the impact is still too early to know since this was only announced today, but we will probably get reports from experts in the coming weeks about the potential specific impacts.

Some old reports about the previous proposals give some light on the potential impact

  • GDP would be negatively impacted in the long run by a range of -0.5-1.5% based on several estimates


  • The negative effects on consumers, particularly those in lower-income quintiles, are expected to more than offset the benefits gained from the extension of tax cuts. While the new proposed tariffs are likely to have a more moderate impact, approximately half or less, they will likely still offset much of the positive economic effects generated by the tax cuts.

  • The impact on inflation will largely depend on exchange rate movements, as a strengthening of the dollar could fully offset the price increases associated with higher import costs.

  • Trade tariffs would not raise enough revenue to offset the revenue loss from the extension of the tax cuts. So, the US budget would still get hurt.

2 Likes

Summary of Immigration Proposals by Trump:

Elimination of DACA (Deferred Action for Childhood Arrivals):

Established in 2012, DACA protects certain undocumented immigrants brought to the U.S. as children from deportation and allows them to work legally
During his first term, Trump attempted to end DACA but was blocked by the Supreme Court in 2020. Now, as President-elect again, there is uncertainty. While Trump has hinted at being open to some form of relief for “Dreamers,” his administration’s past actions and ongoing litigation suggest DACA’s continuation is at risk.

  • Impact: Without DACA, over half a million recipients could lose their protected status and work authorization. Many have U.S.-born children, and losing DACA would place families at risk of deportation, increase stress, disrupt continuity of care, and negatively affect workforce stability in sectors where they are employed.

Changes to Public Charge Policy:

Historically, the government can deny green cards to noncitizens deemed likely to depend on government support (“public charges”). Under Trump’s first term, the rules were broadened to include non-cash benefits like Medicaid in these determinations.

  • Impact: If reinstated, these rules would again discourage millions from seeking necessary healthcare or enrolling in programs like Medicaid or CHIP, worsening health disparities and leading to lower coverage rates among immigrant communities.

Mass Detentions and Deportations:

The incoming administration has signaled plans for large-scale deportations of undocumented immigrants, including long-term residents, and potentially entire families.

  • Impact: Immigrants fill critical roles in various sectors (agriculture, construction, health care). Their removal would strain labor markets, push up costs of essential goods, and ultimately slow economic growth. It would also require substantial taxpayer funding to enforce widespread removals.

Ending Birthright Citizenship:

The U.S. Constitution guarantees citizenship to nearly all children born on U.S. soil. Trump’s proposal to end birthright citizenship for children of certain immigrants would directly contradict constitutional law.

  • Impact: Children who lack citizenship status may have reduced access to health coverage and care, and it could exacerbate labor shortages. Children of immigrants generally perform well economically, contribute to the tax base, and are often overrepresented in the health workforce.

Reinstating the “Remain in Mexico” Policy:

Previously, asylum seekers were forced to wait in Mexico, often in unsafe conditions, while their claims were processed. Reinstating this policy would again place vulnerable people at risk, increase stress and health problems among asylum seekers, and raise logistical and moral challenges.

  • Impact: A heavier military presence and stricter border enforcement could instill fear in immigrant families and potentially disrupt local economies. Legal challenges may follow if military funds are diverted to border enforcement.

Restrictions on Humanitarian Protections (Refugees, Asylum, and TPS):

Trump reduced refugee admissions to historically low levels during his first term and is expected to do so again. He also plans to eliminate the CBP One app (which was designed to schedule entry appointments for asylum seekers) and roll back Temporary Protected Status (TPS) designations.

  • Impact: Refugees and TPS holders are often working, contributing residents. Eliminating these protections would put them at risk of deportation, increasing family separations and disrupting communities and workplaces. TPS is also critical for those fleeing countries affected by disasters or conflicts. Ending these protections can lead to workforce instability and place additional burdens on the health and social support systems in both the U.S. and the migrants’ countries of origin.

A post was merged into an existing topic: Impact Trump Immigration Policies on the US Economy

President Donald Trump suggested that some savings from his federal cost-cutting effort, overseen by billionaire Elon Musk, could be sent back to US taxpayers

This could be inflationary if amount is significant, there is nothing more inflationary than giving people free money as in 2021, by impact would be a one off so not at all to the same extent.

"There’s even under consideration a new concept where we give 20% of the DOGE savings to American citizens, and 20% goes to paying down debt, because the numbers are incredible,”

https://www.bloomberg.com/news/articles/2025-02-19/trump-floats-giving-taxpayers-cut-of-doge-savings-amid-criticism?utm_content=markets&utm_medium=social&utm_source=twitter&cmpid%3D=socialflow-twitter-markets&utm_campaign=socialflow-organic

Trump Proposed Policies will only bring more inequality to the US economy

Careful analysis of the 2018–19 trade war with China consistently found that foreign exporters to the United States did not lower prices when hit with US tariffs; US buyers of imports bore the tax burden.

https://www.piie.com/research/piie-charts/2025/trumps-tariffs-canada-mexico-and-china-would-cost-typical-us-household

1 Like