OPINION:
The Trump 2.0 economy is proving resilient but hardly remarkable.
Until President Trump’s One Big Beautiful Bill Act takes effect, his policies aren’t helpful.
Spending more on industrial policies, Medicaid and food stamps, President Biden boosted the federal deficit from 4.6% of gross domestic product before COVID-19 to 6.2% in 2024.
That turbocharged demand and took unemployment below 4% by 2023, but payroll employment kept expanding, aided by hundreds of thousands of illegal immigrants joining the workforce.
Mr. Trump’s tariffs and deportations are putting the brakes on all that.
Mr. Trump may want to reshore more manufacturing — or, at a minimum, redirect supply chains away from China to accomplish better supply-chain security — but businesses can’t easily find enough willing, adequately skilled factory workers.
Mr. Trump’s hardball negotiating tactics are yielding some results. Canada is rescinding its digital services tax aimed at making American high tech pay Ottawa’s bills, but moving supply chains, even for simple items such as home furnishing and light equipment, is expensive and arduous.
Businesses are holding back on many investments, playing defense, until they know what the tariffs will be and what kind of foreign market access they can expect.
No matter what Mr. Trump did, this was to be a difficult year for consumers.
Excess savings from COVID-19 shutdowns ran out last year, and households borrowed more to cope with inflation. Upper-income consumers increasingly carried the economy, but now tariff uncertainty and inflation are stressing them out.
Tariffs are taxes, and they reduce real after-tax buying power.
It was no surprise that in April and May, inflation-adjusted household spending was mostly stagnant.
By shutting down illegal immigration and, with his deportations, scaring many illegals in the country away from showing up to work, Mr. Trump is slowing overall job growth and exacerbating low-skilled labor shortages in food processing, agriculture, construction, child and home health care and nursing homes.
Over the past six months, new employment averaged only 130,000 per month, down from 168,000 in 2024.
The economy likely grew about 0.8% in the first half of this year and will not perform much better in the second half.
Beyond specific industries and job categories dependent on immigrants, the broader labor market looks stressed.
Meat packers and other factories can’t find enough workers, but unemployed white-collar workers are increasingly challenged to find new employment, in no small measure because businesses are looking to get more done and make and sell more stuff with fewer workers.
During my time in Washington, the power of institutions has often appeared inversely related to the size of the structure they inhibit. Omnipresent members of Congress toiling on Capitol Hill seem less effective than omnipotent presidents at the smaller White House. The omniscient Supreme Court, which can squelch laws and executive orders, resides in an even smaller structure.
Drive up Constitution Avenue to note that a relatively modest building houses the Federal Reserve Board, but it has the power to print money.
Pols and financial commentators in both the liberal and conservative camps believe that makes Fed Chair Jerome Powell as powerful as the Wizard of Oz.
Generally, the Fed creates money to buy on short-term bonds and regulates those purchases to adjust the overnight lending rate among banks. In turn, those should push longer rates up or down (for example, on the 10-year Treasury) and spur growth by influencing the rates charged on consumer loans, including credit cards and mortgage rates.
Faced with the prospect of inflation arriving later his summer from his unpopular tariffs and deportation policies and fearing these could cause a recession, Mr. Trump has been haranguing Mr. Powell and threatening to designate a replacement many months before his term ends.
However, when Mr. Powell cut rates by a full percentage point from last September to December, the 10-year Treasury rate rose by about a percentage point instead of going down.
The vast supply of U.S. debt in global markets frustrated the Fed’s intentions.
Truth be known, Mr. Powell has the power to pour teacups of ice water into warming global oceans.
Even if he could lower the temperature in credit markets, he can’t inspire unemployed project managers, administrative assistants, lawyers and insurance adjusters to retrain or pick lettuce in California, take factory jobs or babysit the elderly and infirm.
Monetary policy is no good for structural problems that require Americans to accept that they erred by going to college and that more teenagers should learn trades useful in manufacturing and high-tech services.
Only then would factories be able to adequately expand. That, in turn, would create more jobs for the fewer college graduates in a labor force that would be more realistically balanced to support healthy growth.
Until that epiphany arrives, we need a more thoughtful immigration policy that better fills gaps in our labor force.
In the meantime, leaning heavily on easy-money policies would generate more inflation but not much more growth.
• Peter Morici is an economist, an emeritus business professor at the University of Maryland and a national columnist.
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