The Cost of a Golden Age

The use of nostalgia within Donald Trump’s economic approach and an insight towards the economic future of a Republican America.

“Make America Great Again.” This is the well-known slogan that was recently repopularised by American politician and now once again president elect, Donald Trump. First introduced by Ronald Raegan in his 1980 presidential campaign, this phrase has now become symbolic in referring to Trump’s political base, evoking the feeling of nostalgia which seemed to lay the foundations for his 2024 return as a presidential candidate. Towards the end of 2024, American voters were asked to cast their ballot and pick between red and blue, Republican and Democrat, Trump or Harris. This endless duality which seems inherent to American politics has  raised unavoidable questions regarding the future of the country, but there is one that has relentlessly vexed economists worldwide: how will the U.S. economy change under Trump’s leadership, and what lies in the future of a newly Republican America?

The Trump-Vance administration has inherited an economy with a remarkably positive outlook, a current upwards streak, which they may strive to capitalize on. By hinging on the nostalgia for the quality of life enjoyed by consumers before the coronavirus outbreak, during Trump’s first term, the Republican campaign has successfully conquered the votes of many coming from low income backgrounds, promising them the financial security they enjoyed before the global pandemic. December interviews carried out by TRT News to American consumers revealed the common perception that the cost of living had increased during  Joe Biden’s presidency, and many coming from a low income background expressed concerns regarding their decreased quality of life as a result. 

So is there validity in the ‘Trump 1.0’ nostalgia? Is it truly Trump’s economy that consumers yearn for or are there other circumstances, such as the effects of the COVID-19 crisis, which may be at play here?

To understand the current economic landscape of the U.S. and its future, we must first break down the gears put in place by Biden’s administration, whose dividing presidency has been dubbed by some as the “world’s worst half-time show,” and as having an “unmatched legacy of accomplishment” by others. Douglas Holtz Eakin, incumbent president of the American Action Forum policy institute, argues that the negative view of the economy under Joe Biden is in part accurate, largely due to two “policy errors,” including the mismanagement of the Federal Reserve (the U.S.’s central banking system), and the American Rescue plan, a $1.9 trillion economic stimulus bill which strived to ‘rescue the economy’ and ‘provide direct relief’ after the COVID-19 crisis. Eakin argues that the latter offered too high a stimulus in an economy which was already “very close to full employment.” 

But is this what drove voters to a Republican majority? The fragile and emotional nature of elections lends itself to vulnerability, at times causing people to act out of aversion for their current situation, allowing for ambiguity and doubt regarding the best choice for each person’s values. That being said, the appeal of a return to the ‘good old days,’ even if those days were just four years ago, remains hard to overlook during the so-called dog days; a promise of prosperity is even more charming in times of hardship. 

So what lies behind the call of the siren whose role, alas in this case, is occupied by Donald Trump?

President Trump has established his primary economic policy concerns throughout the course of his campaign, which deal in part with the U.S.’s role in global trade, namely through the implementation of tariffs.

 Dutch lecturer Joeri Schasfoort outlines the possible outcomes of President Trump’s ‘tariff spree’ plan, which aims essentially to decrease the U.S.’s imports and increase exports by employing a 60% tariff on any and all goods imported from China, as well as a 10-20% tariff on goods imported from other countries. While former president Biden preferred to allocate subsidies and minimally build on Trump’s previously established tariffs, Trump’s administration might opt to slash Biden’s signature subsidies - especially to green energy producers - therefore benefiting global exporters, but piling on an excess of tariffs. Last time around, Trump implemented tax cuts in hopes of mitigating the struggles of low-income families, but the individuals which benefited from this, the consumers, spent their increased disposable income on imported goods. This increased demand for globally sourced goods by the U.S. ended up cancelling out the effects of the tariffs somewhat, ultimately leading to the country’s trade deficit doubling by the end of Trump’s first term. 

So what would this mean for the average consumer? Studies have shown that these tariffs could cost up to 3 trillion dollars in tax increase for the American consumer over the next 10 years, a regressive increase which could crush low income families. Additionally, it would be an invite to retaliation, which could damage international relations irreversibly, especially since this would be a completely unprecedented motion, not just for the U.S. but for any economy worldwide.

Furthermore, Schasfoort draws attention to Trump’s other wild card: the dollar policy. After Trump’s victory was asserted by the media, the dollar immediately shot up in value, potentially due to currency traders betting on Trump’s spending tendencies, which they expect to lead to inflation and the Federal Reserve raising interest rates, thus also attracting more foreign capital to US markets and causing the dollar to rise. This not only contradicts Trump’s plan of increasing exports and reducing imports, but could also have a ripple effect on the web of dollar borrowing and lending, since it is true that spending on behalf of the U.S. could help the global economy, but the raising of interest rates would compensate for this, ultimately making borrowing and lending in U.S. dollars more expensive. This could be bad news for global dollar borrowers such as Egypt, Argentina and Turkey, but good news for lenders such as China, Japan and Germany. 

In conclusion, despite the incendiary proposals which were advertised during Trump’s campaign, it is not certain that these policies will be implemented. Many of these could be catastrophic both for the U.S. economy and for global trade, but many other policies, such as income tax cuts, are mainly just a continuation of where Biden left off, if more regressive than previously before and with the signature touch of Trump’s trickle down economics, yet still demonstrating the continuous quality of this political period. Although the latter is portrayed by many media sources as constantly shook by a handful of polarising propositions, oftentimes it is just a series of constant evolutions and policies building on each other, like one huge, fragile house of cards.