Trump's mishandling of the US economy

It was clear from some of the recent decisions taken by President Donald Trump concerning the US economy that he had a poor understanding of economic matters. Peter Navarro, his principal advisor, although with a PhD from Harvard, was known to be poorly versed in economic issues.

Some years ago he had written a book extremely critical of China. This thinking lent support to Trump’s views about his country’s relations with Beijing. The on and off approach towards using tariffs to protect the US industry that had been losing jobs to China and other east Asian countries had created great uncertainty among potential investors in the US economy. One result was the pressure on the American dollar which lost its value with respect of world’s major currencies.

An index that measures the value of the dollar against a basket of major currencies ended a five-day decline on April 15, 2025. The dollar had fallen 8 per cent since the beginning of 2025 and was trading near a three-year low.

The decline in the value of the dollar had made imports more expensive for consumers in the United States even without counting the impact of tariffs imposed by President Trump. The decline in the value of the dollar was not expected by Trump’s close associates. Scott Bessent, the Treasury Secretary, was surprised by the dollar’s fall in value. He had expected the opposite to happen.

Sharp changes in the value of the dollar produce uncertainty for those who use the currency. “Both institutional investors and central banks are having to begin to think about what would happen should the dollar and the Treasury market no longer be the safe haven, said Joe Brusuelas, chief economist at the consulting firm RSM.

The dollar is on one side of nearly 90 per cent of all foreign exchange trades, according to the Bank for International Settlements, from Americans using their credit cards to large corporations making billion-dollar takeovers. Essential commodities like oil and food grains are also typically priced in dollars, regardless of who is buying or selling.

Bred Setser, a senior fellow at the Council of Foreign Relations, advised that not too much should be read into dollar’s decline. “A lot of money coming into the United States hasn’t been coming seeking safety. It’s been coming seeking yield and chasing up the run-up in U.S. equities,” he said.

“In that context when there’s a general move to reduce risk — because the world seems a lot riskier after Trump’s tariff announcement – some of that money that was betting on US outperformance and the US continuing to offer outsized returns is being unwound.”

But even Setser acknowledges that there might be something more fundamentally worrying about to the dollar’s slide in expectations about the economic outlook. “It is not crazy to think that after a period of exceptional policy volatility in the United States and with real risk of recession, that some foreign investors might wonder whether they should continue to put an ever-increasing amount of money into the United States.”

The Dow Jones Industrial Average, a basket of stocks representing 30 big and well-known companies, hit an all-time high of just over 45,000 in December 2024 but declined to 38,000 on April 4.

There were criticisms against the actions taken by Trump, even by his supporters. Ben Shapiro, the right-wing pundit and co-founder of Daily Wire, called the tariffs “probably unconstitutional” and illogical, and Wall Street Journal’s editorial board criticised the levies. Tens of thousands of protesters took to the streets of Washington and cities around the country on April 4, in what was possibly the biggest demonstration against the president following his return to the office.

In a number of TV appearances on the Sunday 6, Trump’s associates offered two main justifications for the tariffs, saying they are meant to accomplish the long-term goal of completely reforming the American economy while giving the US increased negotiating power to strike trade deals. Brooke Rollins, the Agriculture Secretary, said the tariff moves were made by the ultimate dealmaker who in previous life was a businessman. Though she insisted the market dip was a product of adjustments, she acknowledged short-term uncertainty for American farmers, noting that the White House is ready to deploy financial aid to them if needed.

Treasury Secretray Scott Bessent called the $6 trillion stock drop a short-term reaction but declined to say whether the tariffs are permanent. He said that they have given Trump maximum leverage to negotiate trade terms. While the markets were in turmoil, Trump spent a good part of his time on the golf courses he has built and owns. “That may end up being the most enduring image of the Trump presidency,” Senator Adam Schiff of California said on a Sunday TV talk show. “The president out on the course while people’s retirement is in flames.”

For reasons hard to understand – even harder to explain – some of the moves by Trump and his administration were hurting one of the sectors that were producing large trade surpluses for the economy. Teaching institutions are among America’s most competitive international exporters. The country runs a huge surplus in this sector, meaning that foreigners buy much more education than they pay for to the world outside.

In the 2022-2023 academic year, more than three times as many foreign students were studying in the United States as there were American students enrolled abroad. Translated to money terms: the American education services trade surplus is larger than the entire civilian aircraft sector. And America sells a lot of planes.

Most foreign students are likely to pay full tuition fees than those who come from American families. Students from abroad have served as powerful contributors to the development of science and technology in the United States. But ignoring these contributions or just not being aware of them, Trump fetishises 1950s-style manufacturing rather than 21st century services even though it is the latter that the United States excels at producing at home and selling abroad.

As Catherine Rampell, a columnist for The Washington Post, wrote in a recent contribution, under the programme to slash government expenditure, the Trump government has made huge cuts in the large amounts of money that used to flow to universities and research institutions. “Last fall, Trump promised green card to any international student bright enough to graduate from a US college.  He also promised to help his country better compete on the global stage. Today, he is destroying one of our most powerful economic engines – and ensuring international students don’t come here.”