When President Trump delivers his State of the Union address on Tuesday, he can quite justifiably say that the state of the economy is good.
Unemployment is low, inflation is muted and growth has continued unabated for nearly 10 years. As a college professor, I’m often drawn to giving letter grades, and would give the United States economy an A-, with the potential for a better grade if the economic gains had been distributed more evenly.
But Mr. Trump controls economic policy, not the economy, and so a fairer report card would also assess his actual policies.
To provide a nonpartisan appraisal, I’ve reviewed surveys of about 50 leading economists — liberals and conservatives — run by the University of Chicago. What is startling is that the economists are nearly unanimous in concluding that Mr. Trump’s policies are destructive. That is why many economists are uneasy about his presidency, even though the economy earns solid grades.
Trade Policy: F
Mr. Trump’s protectionist impulses place him squarely at odds with the economic wisdom that tariffs are harmful. Worse, by imposing tariffs on goods like aluminum and steel Mr. Trump’s trade policy has also damaged the competitiveness of American manufacturers. None of the economists taking part in the surveys agreed with the claim that these tariffs would “improve Americans’ welfare,” and all of them said global supply chains had made these tariffs more costly than they would have been in the past.
The United States started a trade war with China and China quickly retaliated, raising tariffs on American-made goods. Mr. Trump also created needless uncertainty with his threat to rip up the North American Free Trade Agreement that binds the United States, Canada and Mexico. The threat yielded a substitute deal that market economists believe will do little more than replicate the previous one, and it is unclear that Congress will pass it.
Criticism of Mr. Trump’s protectionist instincts is widespread. When he said on Twitter that he was “Tariff Man,” financial markets tanked. An analysis conducted by the president’s own Council of Economic Advisers has reportedly concluded that his tariffs will reduce economic growth. Even by Mr. Trump’s own preferred metric, the balance of trade, his policy has failed: The trade deficit has risen to a 10-year high.
Fiscal Policy: D-
The logic of fiscal policy is straightforward: In good times, the government should spend less, so that in bad times it can afford to spend more and tax less, helping to support an ailing economy. When private-sector demand falls, government picks up the slack.
On this score, Mr. Trump’s fiscal policy is a colossal failure. His signature achievement is a $1.5 trillion tax cut that provided stimulus when, arguably, it was least needed. As a result, the budget deficit is atypically high for a healthy economy, and rising government debt will make it hard for fiscal policy to provide a boost when the next downturn hits.
Mr. Trump might argue that the point of the tax cut wasn’t to provide a short-term stimulus, but rather to promote long-term economic growth. However, economists say that it will fail to do that, too. In a survey before the bill was passed, all but one expert said the tax cut wouldn’t lead gross domestic product “to be substantially higher a decade from now.” Darrell Duffie, the lone dissenter, said it would boost growth, but he added that “whether the overall tax plan is distributionally fair is another matter.”
The problem, according to Daron Acemoglu, a prominent macroeconomist, is that while “simplification of the tax code could be beneficial,” that effect would most likely be “more than offset by its highly regressive nature.” Recent data support this pessimism, as the much-promised investment boom the tax cut was supposed to deliver appears not to have materialized.
It is worth noting that the one part of Mr. Trump’s platform that received a strong endorsement from economists — his promise of infrastructure spending — has languished, despite the possibility of bipartisan support.
Monetary Policy: C
For a president, monetary policy should be simple: Appoint good people, and let the Federal Reserve do its job. Mr. Trump has got half of this right. Jerome Powell, his pick for Fed chairman, has so far proven to be adept. In a recent survey, 43 percent of economists gave Mr. Powell’s leadership an A, and 51 percent gave him a B (with the remaining 6 percent giving him a C). Mr. Trump’s other Fed appointments have been mainstream, yielding a cast of policymakers that Jeb Bush might have appointed had he been elected president.
But Mr. Trump has dragged down his grade in this category by meddling in ways that have needlessly complicated the Fed’s job. Most industrialized countries, including the United States, have generally insulated monetary policy from political pressure, believing that such independence helps policymakers deliver low and stable inflation. Yet Mr. Trump has repeatedly criticized Mr. Powell for not setting interest rates lower, and has reportedly raised the possibility of firing him. The president is playing a self-defeating game, because he is making it harder for Mr. Powell to deliver low rates without appearing to have been bullied by Mr. Trump.
Deciphering a Puzzle
Mr. Trump isn’t just pushing against one or two threads of economic consensus. Instead, his program is an almost complete repudiation of the orthodoxies endorsed by Democratic and Republican economists.
Put the pieces together, and all of this presents a puzzle: If economic policy is so bad, why is the economy doing so well?
Perhaps it reflects good luck rather than good judgment. Mr. Trump’s luck was to inherit an economy that had been on a steadily improving glide path since around 2010. Charting nearly any economic statistic shows that today’s economic strength represents a continuation of that trend.
Even if Mr. Trump doesn’t deserve credit for this trajectory, he should get some credit for not knocking the economy off this path. Unless, of course, the real explanation is that the president doesn’t have much effect on economic outcomes.
The more frightening explanation is that the downside of Mr. Trump’s policies are yet to become evident. The chaos of his administration’s policy process has created uncertainty and probably scared off some investors, although their absence is difficult to measure. In addition, Mr. Trump’s unfunded tax cuts are creating a debt that future generations will have to repay. And by undermining the Fed’s independence, he may have made it less effective at fighting inflation.
That’s not all.
Cutting regulations in the financial sector may help big banks today, but it could increase the chances of future financial crises. Eliminating environmental regulations has probably improved results for some businesses while speeding climate change. And while impeding immigration may have reduced competition for jobs, many economists worry that in the longer run, reducing the number of immigrants will lead to less innovation and growth.
Of course, I should admit a final possibility: Perhaps Mr. Trump has got it right, and the economists have gotten it all wrong. As a card-carrying economist, I don’t believe this, but it seems that, in equal measure, Mr. Trump doesn’t believe what economists say, either.