Good morning from New Economy Brief.
Last week, the world woke up to the news that Donald Trump had been once again elected President of the United States.
His victory came after an election where fundamental social and political issues were on the table. Major dividing lines like reproductive rights, racial justice, migration and the principles of democracy itself dominated the presidential race.
But at the heart of the election result, it seems, was the economy – or more accurately, how Americans feel about it. This week, we explore the economic factors behind Trump’s success and the radical (and controversial) policies he is proposing. This New Economy Brief will be the first of two focusing on Trump’s election. In part two, we’ll move onto what this result means for the rest of the world, including the UK. But first, let’s look at what happened last week.
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Follow the money
It feels trite to reduce the election to economic factors. And of course, there was so much more at stake here. But early analysis shows that the cost of living crisis – and the simple fact that Americans have not felt better off under the Biden administration – were major factors in Donald Trump’s victory.
But isn’t the US economy growing? Growth is often seen as the panacea for a nation’s economic woes. As with the UK Labour Party, it is often what governments claim to be focused on delivering – and the Democrats have done just that. During Biden’s premiership, the US saw the highest GDP growth in the G7 by quite some way (10.7% increase from 2019 to 2024 – for comparison, the UK managed just 2.9%). Judging by these figures, America is excelling. So why did two-thirds of US voters say the country was on the wrong track ahead of the election?
Growth and living standards. The reality is that headline economic figures mean very little to households who don’t actually feel any better off. Since Biden’s election, real median household incomes fell relative to their pre-Covid peak and poverty, unemployment and homelessness rose. The number of Americans spending more than 30% of their income on rent climbed. Government transfers such as boosting food stamps and extending child tax credit and unemployment-insurance payments helped households at the beginning of the Biden administration. But by the end, once these short-term measures expired, families were left battling the sticky, structural causes of inequality: high mortgage rates, extortionate groceries and unaffordable health care, child care and housing.
Living standards and Trump. The result? Voters who didn’t share in the wider success of the US economy punished Harris at the ballot box. According to the i’s housing correspondent Vicky Spratt, all key swing states shared a common statistic – they all had above average house price inflation. Voters’ negative feelings on the economy were key to the result, and this economic insecurity cut across different racial groups. This helps explain both the election just gone and Biden’s success in 2020. Analysis by academic Stephen Semler shows that in 2020, 50% of voters rated the economy as "not good/poor”, with Biden securing 80% of this group's vote. In 2024, 68% of voters rated the economy as "not good/poor”, with Harris earning just 28% of this group's vote and Trump getting 70%. 91% of those who rated the economy “Excellent/Good” voted for Harris. These statistics suggest that no matter the headline economic figures, voters will punish the incumbent if the economy doesn’t feel like it’s getting better to them. (We will cover the lessons for the UK and beyond in part two.)
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So, what's on offer?
If voters were driven to Trump by their personal economic situations, then what do they hope he can do for them? Trump’s economic offer is radical. His ‘America first’ programme is one of tax cuts, tariffs and protectionism. Here’s the run-down of what to expect:
Tax cuts. Trump has promised to cut the corporate income tax rate from 21% to 15% for companies who make their products in the US. He has also pledged to make several tax cuts from his first term permanent, such as those in the 2017 Tax Cuts and Jobs Act, which would have otherwise expired next year.
Tariffs. To pay for proposed tax cuts and to, as he sees it, put “America first”, Trump has promised huge tariffs on imports. A 60% to 100% levy on Chinese products and a 10-20% levy on goods from the rest of the world have been floated. Experts warn that any revenue generated by the tariffs will be offset by higher prices for US consumers. The Center for American Progress think tank estimates that the tariffs will mean middle-income families lose $2,500 to $3,900 loss. Although Trump promises the tariffs will boost employment, figures from his first term suggest otherwise. In 2018, he imposed 25% tariffs on imported steel to protect US producers, but by 2020 total employment in the US steel sector was 80,000 – still lower than the 84,000 it had been in 2018. Importantly, Trump is talking about tariffs not just as a trade policy mechanism but as an important source of government revenue, even claiming they could entirely replace federal income tax (an idea that economists have comprehensively debunked).
Energy and defence. Trump has vowed to cut climate initiatives that were central to Biden’s Inflation Reduction Act such as offshore wind projects, which he deems to be too expensive. Instead, he plans to “Drill, baby, Drill”, promising that American oil and gas will lower energy bills. As well as green energy, Trump also sees defending other countries as a waste of money and has suggested he will scale back support for Ukraine. We’ll look at the global impacts of Trump’s climate and foreign policy in part two.
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Watch this space
Behind all the chaos and emotion, it seems that Trump’s victory can largely be put down to a common electoral theme – people struggling to get by. A new regime of deregulation, cuts to green energy infrastructure and lower taxes is unlikely to fix the structural issues with the US economy that ultimately ended the Biden-Harris era. If anything, it will make them worse. Tariffs will push up prices for consumers while tax cuts will increase demand, making the Federal Reserve more cautious about cutting interest rates. Mass deportations, as well as being deeply traumatic for communities across the US, will reduce the supply of labour and push up business costs. American voters are desperate for a solution to the cost of living crisis – but will they get one? In the second part of our Trump Focus, we’ll look at what his election means for the global economy, for the climate and for progressive regimes across the world.
The case for solidarity levies.Emmanuel Macron, Mia Amor Mottley and William Ruto – heads of state of France, Barbados and Kenya – have co-authored an article for Project Syndicate proposing global taxes on emissions to channel more climate finance to developing countries. The three are co-chairs of the Global Solidarity Levies Task Force which will be marshalling support from political leaders at COP29.
Bidenomics and geopolitics. Economic historian Adam Tooze’s latest essay on “Great Power Politics” provides a comprehensive account of the shifts in US industrial strategy under both Biden and the last Trump administration. He explains how domestic political debates over protectionism, climate change, competition with China and other geopolitical and national security concerns ultimately culminated in the Inflation Reduction Act, CHIPS Act, Bipartisan Infrastructure Law and National Defense Industrial Strategy.
Will growth be higher than the OBR expects? Pointing out that the OBR forecasts very little impact on growth from higher public investment in Labour's first budget, Craig Berry says it should be "more open to evidence on what really drives growth". He thinks the OBR's approach ignores the possibility that public investment and industrial strategy can change the structure of the economy.
Public services and next year’s spending review. The Institute for Government has published a new report exploring the impact of Labour’s first Budget on public services. Capital investment has been boosted but while spending on public services has increased substantially, the research shows this is heavily front-loaded – it implies current spending cuts to unprotected government departments beyond 2025/26. A lot is riding on how the government approaches the Spending Review next spring.
Is Economics Education Fit for the 21st Century? Rethinking Economics has launched a report judging the economics curricula at 20 leading universities across the UK on how well they address climate collapse, inequality, and economic instability. It finds that 75% of universities “lack any meaningful integration of ecological economics”, while 55% fail to engage with issues like slavery, colonialism or neocolonialism.
“A new policy mix in a world of supply shocks”. Agnès Bénassy-Quéré, Deputy Governor of the Banque de France, has given a speech about the need for more flexible fiscal and monetary policy to deal with the inflationary pressures of climate change. She argues that, in the event of a negative supply shock like the recent energy crisis, government should prioritise support for investment in particular sectors “so as not to delay the transition and thus protect itself against future supply shocks”, while central banks should focus more on core inflation than headline inflation.
