Trump has destroyed the American economy
BERKELEY – Less than six months into his second term, President Donald Trump and his team have inflicted substantial damage on the U.S. and global economies. From deploying often violent, hooded Immigration and Customs Enforcement (ICE) agents against immigrants—both legal and undocumented, many of whom work in key industries—to imposing or threatening steep tariffs and randomly firing government officials, the administration has generated profound uncertainty and volatility, undermining business and consumer confidence.
It's worth remembering that Trump inherited a solid economy with robust GDP and job growth, and declining inflation. In its forecast for the end of 2024, the US Federal Reserve anticipated continued growth of 2.1% and inflation falling to 2.5% in 2025. Three months later, these projections were lowered to 1.7% growth and 2.7% inflation. Most analysts, from the Conference Board to the International Monetary Fund, agree that the US economy will slow significantly, with growth ranging between 1.4% and 2%, and global growth falling from 3.3% in 2024 to 2.3% in 2025.
While Trump's daily political pronouncements (often delivered via social media) and his legally questionable executive orders are evident, a less visible but even more significant fact is the damage done to global confidence in the United States, as evidenced by the dollar's 10% drop against the euro and the Swiss franc. Although US stock markets have recovered following the suspension of the most punitive "Liberation Day" tariffs announced in April, the dollar remains weak and Treasury yields remain high.
Even worse, if Trump and his fellow Republicans' One Big Beautiful Bill Act (OBBBA) makes it through Congress—as seems likely—the federal government's debt will increase by at least $3 trillion by 2034. Bond vigilantes are already outraged at this prospect, as evidenced by rising interest rates on ten- and 30-year federal debt.
At a time when most voters consider the economy their top concern, Trump's brutally persuasive deportations and harassment of immigrants will bring additional economic costs. Tourism in the United States is already in decline, with Canadian visits down nearly 40% year-over-year. Immigrants account for approximately one-third of the leisure and hospitality workforce and nearly 75% of the agricultural workforce, most of whom are undocumented. Due to business concerns about labor shortages, Trump recently announced an easing of immigration restrictions in these sectors, but quickly reversed himself in the face of opposition from his team.
But the future is just around the corner. The administration's draconian approach to immigration will limit workforce growth and, consequently, the economy; it will reduce the availability of skilled labor, undermine innovation, increase costs, and diminish business profitability in all affected sectors.
At the macroeconomic level, the economy's long-term potential growth depends on supply and labor productivity, both of which depend on positive net immigration. Thus, by undermining potential growth through immigration restrictions, the administration has ensured that the already high debt-to-GDP ratio inherent in the OBBBA will rise even more rapidly to unsustainable levels.
Furthermore, massive cuts in federal support for basic science will slow the growth of total factor productivity in the economy. The United States has long been the world leader in innovation, largely thanks to its public investments in research and development. The returns on these investments have been enormous, ranging from 30% to 100% or more. According to a study by the Federal Reserve Bank of Dallas, government-funded R&D accounts for about a quarter of total business productivity growth since World War II.
The government has already laid off thousands of scientists, canceled millions of dollars in outstanding scientific grants, and suspended funding for major universities. But now, the OBBBA will deal a severe blow to the research infrastructure that has sustained American technological leadership, with a 44% to 55% reduction in grant funding from the National Science Foundation, the National Institutes of Health, the Environmental Protection Agency, and the Centers for Disease Control and Prevention.
These cuts will have drastic negative consequences for research universities, which depend on federal support to hire faculty, train graduate students, and cover the overhead costs of operating laboratories and projects. Just as AI and quantum computing promise to drive innovations with profound economic and national security implications, and as global warming threatens to render the planet uninhabitable, the government is destroying the foundation of cutting-edge American research.
Until recently, the United States was the preferred destination for foreign-born academics, many of whom arrive as students and then stay to train the next generation of researchers or to found companies. These immigrants' contributions to American (and global) productivity have been enormous; a recent study estimates that they are responsible for about 36% of American innovation. However, with the Trump administration vilifying all immigrants as "invaders" and discouraging foreign scientists and students from coming, subjecting them to stricter visa requirements, including vetting their social media posts, the future of American innovation and economic growth is in jeopardy.
The self-destruction of the past six months has been unprecedented. Trump's second-term agenda, described in detail in the Heritage Foundation's 2025 Project, is not only causing substantial short-term damage to the US economy but also fundamentally threatening America's standing and competitiveness in the world. By suppressing dissent and deploying the US military in the country, Trump is following the autocrat's playbook. He must be stopped before the damage becomes irreversible.
The good news is that the American public seems to have woken up to the danger. Trump is in a very precarious position in national polls, both in terms of overall performance and on every major issue except immigration, where the results are mixed. The bad news is that the OBBBA will likely pass, despite the opposition of the vast majority of Americans.
This horrendous legislation will shift income from the poorest to the richest, leave 17 million people without health insurance, as well as 3.2 million adults and one million children without food assistance, and add trillions of dollars to the federal debt. Risk premiums and interest rates on U.S. government securities will rise significantly, as will interest rates for American businesses and consumers. A booming economy that Trump derailed is about to get considerably worse.
The author
Laura Tyson, former chair of the President's Council of Economic Advisers during the Clinton administration, is a professor at the Haas School of Business at the University of California, Berkeley, and a member of the Angeleno Group Board of Advisors.
The author
Lenny Mendonca, senior partner emeritus at McKinsey & Company, was chief economic and business advisor to California Governor Gavin Newsom and chairman of the California High-Speed Rail Authority.
Copyright: Project Syndicate, 1995 - 2025
Eleconomista
