Trumponomics 2.0

With President Trump's victory in the recent election, economists and others are pondering what his second term might mean for the U.S. economy. "Trumponomics 2.0", the term used to describe President Trump's potential economic policies by The Economist's U.S. economics editor Simon Rabinovitch, could have mixed results for the U.S. and global economies. The Biden administration relied heavily on stimulus spending, a bit of protectionism, and stricter regulation as the basis of its economic policies. And while the economy performed well, the policies contributed to higher inflation and subsequent consumer dissatisfaction. A second Trump administration promises tax cuts, increased tariffs, looser regulations, and stricter immigration control.

The different approaches between administrations provide a real-time laboratory for economists to gauge, measure, and test economic theories about economic policies. Reduced taxes and fewer regulations would be expected to curry economic growth. Higher interest rates, due to increased federal government borrowing, and a smaller labor pool with the deportation of undocumented workers, could act as a counterweight to growth. Tariffs, heightened consumer demand stimulated by tax cuts, and labor shortages might spur inflation.

For agriculture, trade and fiscal policies will be key. International trade provides a significant share of farm revenues in Nebraska. Another tariff war could reduce these revenues. And higher interest rates would increase expenses and increase the value of the dollar, making U.S. agricultural goods less competitive. Immigration policies will play a role too. Bloomberg reported that, "The U.S. Department of Agriculture has said nearly half of hired crop farmworkers lack legal immigration status." Real net farm income in Nebraska hit lows in 2017 and 2018 not seen since 2000 and 2002 in President Trump's first term, although it rebounded in 2019 and 2020 with the trade agreement with China, increased Chinese commodity imports, trade aid, and COVID payments.

In the end, if the stock market is any indicator, the person occupying the White House may not make much difference for the economy's performance. According to Charlie Bilello, since Herbert Hoover was elected President in 1928, S&P 500 returns were negative during just four presidential terms: Hoover's one term, Franklin Roosevelt's second term, and George W. Bush's first and second terms. Otherwise, the S&P 500 delivered positive returns during every presidential term led by Harry Truman's second term when total returns equaled 131%.

The economy has shown in the past it doesn't always respond to changes in policies in ways economists might forecast, or theory might suggest. Time will tell what effects Trumponomics 2.0 will have on the economy. But if the next four years are in any way like President Trump's first four years, expect a volatile ride.