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To win in 2024, the US president promised an economic course correction. Almost two years later, his agenda has made that fight even harder.
In the nearly two years since President Donald Trump clinched his return to office, the US economy has come under great duress, leaving families and businesses
to suffer through the expensive consequences of constant global conflict and soaring government debt.
It was the financial frustration of a pandemic-weary electorate that helped Trump and his fellow Republicans take charge in Washington in 2024, which they promised to use to defeat the scourge of inflation and slash the profligate government spending they saw as the root of the problem.
But Trump’s actions in office have complicated – if not undermined – those pledges. With two months until the midterms, some of his policies have prolonged or worsened the economic fortunes of those he promised to help.
It began with a punishing global trade war, which exacerbated the nation’s long quest to bring down the cost of living in the years following the pandemic. This week, the president escalated that offensive and took renewed aim at Canada, setting off a costly tariff tit-for-tat that could drive up prices for Americans.
Nor is the war with Iran anywhere close to complete. The seemingly intractable conflict, which reached the six-month mark on Friday (Saturday NZT), has kept fuel prices sky-high. And the costs of Trump’s ongoing military intervention have further exacerbated the nation’s fiscal woes, helping to send the debt soaring past $40 trillion (NZ$67.5t). The development has roiled the bond market in ways that have implicated Americans’ finances, chiefly by making borrowing, including mortgages, more expensive.
The president still maintains that his administration has helped families and businesses, and righted the wrongs of his predecessor, Joe Biden. But polls increasingly suggest that voters have tired of Trump’s appeals for patience as he enacts his full agenda. That appears poised to turn the midterms into a referendum on Trump’s credibility on the economy – a key source for his political rise.
Olu Sonola, the head of US economics at Fitch Ratings, described the dynamic around persistently high prices in America as “death by a thousand cuts”.
He pointed to a confluence of factors, from war to tariffs, that have surfaced over the past year. Sonola said those developments had exacerbated inflation – and, importantly, shaded consumers’ expectations about the state of the economy.
“The drip, drip, drip – week in and week out, month in and month out – has an impact,” he said.
For Trump, the stakes are laid bare in a series of concerning economic snapshots released in recent weeks. That includes a key gauge of inflation, published on Wednesday, which found that prices in July rose by 3.7% compared with a year earlier.
It was the same annualised rate as measured in June, illustrating that price pressures are stuck at a level well above the Federal Reserve’s target.
Not all is bad under Trump. The economy is growing, manufacturing is on the upswing and the labour market has remained steady. Those positives come amid a surge of new investments in artificial intelligence, one that has produced record days in financial markets and raised the odds of an economic boom as the technology truly takes hold.
But Gregory Daco, the chief economist at EY-Parthenon, said some of the data nonetheless illustrated the “economy that could have been”. In a research note this week, he said the United States might have seen more robust growth and other improvements if not for a set of recent shocks that were “policy driven”.
