When US president Donald Trump took office in January he inherited a strong economy , which was growing faster than those of many of its rivals. Nevertheless, he won the election in November on the back of strong voter dissatisfaction with the economy, especially the cost of living. This is the legacy of high inflation sparked first by COVID and then Russia's invasion of Ukraine.
Author
- Steve Schifferes
Honorary Research Fellow, City Political Economy Research Centre, City St George's, University of London
But Trump also won with his appeal to "left-behind" voters, especially working-class people in the US rust belt . This demographic has suffered a long-term decline in living standards as manufacturing jobs in traditional industries like car-making and steel have disappeared.
Trump claimed during his campaign that high tariffs were the answer to most of America's economic problems. He promised a revival in domestic manufacturing by blocking imports, while forcing foreign firms to shift production to the US. And there was also the promise of tax cuts paid for with the revenues raised from tariffs.
But the erratic roll-out of his tariff policies have shattered business and consumer confidence. They have also tanked his poll ratings with respect to his management of the economy. And it is causing chaos to world trade and economic cooperation.
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The threat of higher prices for imported goods has made US consumers cautious. Businesses are facing the awesome task of rejigging global supply chains established over many decades, with no certainty over where they should invest.
China was always the main target of Trump's tariffs, but it is not clear who will win the battle. China has been preparing for this confrontation for years, shifting its exports to other countries and boosting domestic consumption.
And blocking Chinese exports does not automatically mean that US industry will become more efficient and productive. This is especially true in the absence of any industrial policy and with massive cutbacks in federal support for business, including for research.
Trouble ahead for Trump
The dramatic swings in tariff policy are probably less a product of Trump's deep strategic planning - "the art of the deal " - than a response to conflicting pressures from different factions of Trump's supporters.
What Trump probably did not anticipate was the negative reaction of financial markets to his April 2 announcement of massive global tariffs. The precipitous fall in the stock market (which arguably was overvalued already) has wiped US$4 trillion (£3 trillion) off the value of shares. This threatens the pensions of millions of US voters.
Even more serious has been the reaction of the bond market . Trump's plan for massive tax cuts for the rich, now being negotiated in Congress , could add nearly US$6 trillion to the already huge and growing stock of US government debt over the next decade. This strategy will only work if international bond holders are prepared to buy a lot more US Treasury bonds.
But they are now fleeing that market, which is normally the bedrock of the international financial system. This has the effect of forcing up interest rates, both in the US and globally.
The US president's attack on the independence of the US central bank, the Federal Reserve, is further unsettling the markets. The Fed now has the unenviable task of trying both to stop a recession and prevent inflation getting out of hand.
And the economic damage of Trump's tariffs is having political consequences. The Democrats are now favoured to retake control of the House of Representatives in the 2026 mid-term elections .
Trump's popularity will suffer a further blow if Congress is forced to cut government spending even further to finance its tax cuts. One casualty could be Medicaid spending, which faces cuts of US$880 billion . Medicaid provides health insurance for 70 million people on low incomes or with disabilities. The cut has already been included in one version of the budget resolution.
Trump is now caught between his big business backers, who want to drastically reduce the role of the federal government but keep free trade, and his working-class supporters, who are hoping that his tariffs will restore manufacturing jobs.
But this group would be deeply upset by cuts to major government programmes such as Medicare and social security, which many depend on for much of their income. These programmes make up a large portion of all government non-defence spending, and without major cuts it will be hard to find enough savings to fund tax reductions.
With the International Monetary Fund now forecasting a 40% chance of recession in the US, the president's economic ratings look unlikely to improve any time soon.
Steve Schifferes does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.
