Trumponomics: Unshackling the Economy or Bidenomics 2.0?

Among the 64% of eligible voters who cast a presidential ballot in 2024, the vote was almost a tie (President Trump won 49.8% versus Vice President Harris’s 48.3%). The close call is not the most interesting part; the polarization is much more interesting. President Trump is not one to leave many voters or commentators indifferent. He is portrayed as satanic by his detractors and messianic by his supporters.

As a political economist, a constitutionalist, and a friend of limited government, political liberty, and economic freedom, I long ago gave up on partisan politics. My votes have been, at best, noise in the distribution. They have been a horrified annoyance to my friends on both the left and right who—innocent of basic mathematics, which tells us that the probability that one vote will be decisive lies somewhere between one in 10 million and 1 in 100 billion—moan that I “took a vote away” from their candidate.

Unfettered by the partisan obligation of supporting one’s candidate, I can engage in a dispassionate assessment of President Trump’s economic policies. Lest I appear an apologist to some and a quisling to others, I should point out that I have criticized the economic policies of President Trump’s first term, as well as President Biden’s time in office. My compass is non-partisan; it is liberty and the constitution.

What, then, can we say about the first two months of Trumponomics? The first challenge is going beyond the rhetoric and attempting to separate the economic wheat from the blustering chaff. It is, indeed, often difficult to know what President Trump really believes and what he’s using as a bargaining chip for something else. He is more of a scrappy New York property mogul than he is an economic theorist. Still, some themes are obvious.

Two elements of Trumponomics are worthy of praise (if only for their intent, not necessarily for their implementation).

First is the deregulatory instinct. It’s unclear that President Trump is a modern-day Hercules, hell-bent on cleaning 190,000 pages of regulatory filth from the Augean stables of Washington, DC. So far, DOGE is making waves, but appears to be more interested in the marketing splash of a few billions here or there of outrageous government spending, rather than engaging in a frontal assault on the trillions of dollars of unconstitutional spending. President Trump is hardly a starry-eyed theorist in the grand deregulatory tradition of George Stigler, Milton Friedman, or Alfred Kahn. He is not apt to replace failing Social Security, Medicare, and Medicaid with market alternatives. He is unlikely to yield a terrible swift sword of deregulation while quoting James Madison: “I cannot undertake to lay my finger on that article of the Constitution which granted a right to Congress of expending, on objects of benevolence, the money of their constituents.” Still, deregulation and government waste are noble endeavors as we start the painful journey of liberating an American economy that spends an estimated 10% of GDP on annual regulatory compliance.

The second element would be lower personal income taxes and corporate taxes. President Trump intends to extend the tax cuts he pushed through Congress in 2017; without further action, those are set to expire over the next three years. Unfortunately, income and corporate tax cuts will likely be matched by import taxes and debt spending.

This brings us to some fundamental problems with Trumponomics. There are four categories.

First, tariffs.

No matter how you cut it, tariffs (import taxes) are bad economics. As I have explained here before, tariffs hurt American consumers, American businesses that use foreign inputs, and the shareholders of those companies. They also end up hurting American exporters, as foreigners—made poorer by the taxes levied on goods exported to the US—will have less wealth and fewer dollars to buy American goods.

Second, deficit spending.

President Trump has said he wants to extend his 2017 tax cuts. Good. Federal spending is around 23% of GDP, while state spending is approximately 13%. Additionally, about 10% of GDP is spent each year on regulatory compliance. This means that governments at all levels control roughly 46% of the US economy. For every dollar produced by American workers and entrepreneurs, 46 cents are controlled by politicians and bureaucrats; that means only 54 cents are controlled by American families, workers, consumers, and entrepreneurs.

Tax cuts are welcome. But they will have to be matched by spending cuts—because the federal government doesn’t have the constitutional authority for about 70% of its activities… because federal intervention crowds out private activity and innovation… and because cutting taxes without cutting spending will mean a continued increase in the national debt. When President Trump took office in January 2017, the national debt stood at $20 trillion. When he left office in January 2021, it had risen to $27.8 trillion. Interest on the national debt currently consumes about $660 billion per year—that places it after Social Security (21.4% of federal spending), Medicare (13.8%), and defense (13.2%), and just ahead of Medicaid (10.1%). Tax cuts will need to be matched by spending cuts—real, substantive cuts, rather than trimming the waste off the federal behemoth. Alas, President Trump has not shown any interest in fiscal prudence.

Third, immigration policy.

There is some debate on the economic benefits of immigration (economists generally agree that there is a small net positive gain, as the benefits of cheap labor and increased population are offset by government services—which makes sense given the concept of gains from trade). The debate, however, has largely shifted towards a debate about the institutional effects of immigration (it turns out that immigrants increase the institutional quality of receiving countries—which makes sense given the higher propensity of entrepreneurs to emigrate). The problem is that President Trump is not interested in holistic immigration policy, nor is he interested in serious reforms to the welfare states that distorts immigration. Instead, his proposed mass deportations would increase labor costs and thus the cost of goods and services for consumers. President Trump’s immigration policy conflicts with his deregulatory instincts; it will impose extra burdens on the economy.

Fourth, uncertainty.

Long-term economic growth is very sensitive to predictability and a sense of certainty. When economic actors face “regime uncertainty“—lack of clarity or predictability about future rules and procedures—they will be hesitant to engage in long-term capital accumulation and investment. They will instead turn to safer (but less productive) investments, like real estate, gold, or cash. Unfortunately, Trumponomics is part and parcel of President Trump’s bluster and brinkmanship. The art of the deal might indeed end up working; in the meantime, American businesses face uncertainty.

Should they start investing in revamped supply chains to deal with a shifting tariff environment? Or should they ride things out, as tariffs are a mere negotiation tool? Should American businesses start diverting resources away from production and sales, and towards government affairs offices—to seek favors and exemptions in the new tariff regime? Will trading partners be safe if the US is no longer a guarantor of world security and turns its back on its allies? What would a world with unchecked Russian or Chinese influence look like? Will the US continue to guarantee SLOCs (sea lines of communication), the primary maritime routes used for trade and logistics? What will immigration policy do to labor markets? Congress has delegated its Article 1.7 taxing authority, allowing the President broad latitude to impose import taxes in alleged cases of national security… where else will the President assert taxing or other authority over the economy?

All of these factors raise worries.

President Trump— in his quirkiness and chutzpah—has a unique opportunity to roll back the regulatory state. But will he use his powers for good? Will Trumponomics enter the history books as a watershed deregulatory moment, akin to the great telecommunications, trucking, and aviation deregulations of the late 1970s? Or will Trumponomics end up being more of the same, a sort of Bidenomics 2.0, more national industrial policy, dictated by Washington, DC, if with different details?