In this column distributed by the Elon University Writers Syndicate, Associate Professor of Sociology Raj Ghoshal provides his perspective on President Donald Trump's economic impact. This column was published in the Greensboro News & Record.
By Raj Ghoshal
Economists have a well-known saying: Presidents don’t control the economy.
Millions of consumers, business owners, investors and other decision-makers collectively shape the economy’s ups and downs. Changes in tax laws and spending policies typically bear fruit over years or decades, not months. And much of the business cycle remains mysterious even to experts.
But President Donald Trump’s recent actions suggest he intends to put economists’ maxim to the test. In fact, the president is launching simultaneous attacks against more components of the U.S. economy than any president in history.
Start with trade. In the past two weeks, the president has imposed, suspended and re-imposed large tariffs on America’s largest trading partners, giving an ever-changing mix of reasons for his actions. Tariffs work by raising the prices of goods that cross borders, meaning Americans broadly will pay more for imported products. This effect is magnified by the fact that, for goods such as cars and electronics, parts move across borders several times during manufacturing and assembly.
In reaction to the president’s trade policy, the S&P 500 has dropped 8% in the past month, while the Nasdaq index has dipped into correction territory.
These losses persisted even after Trump almost immediately reversed much of his new policy. This is because the president’s volatility is making conditions difficult for businesses that demand stability so they can know whether to hire or fire workers, build new plants and expand into new markets.
But investors, businesses and consumers may only now be starting to factor in the federal government’s recent economic moves outside of trade. If anything, these actions are more worrisome than the tariffs. In February, Elon Musk’s Department of Governmental Efficiency laid off tens of thousands of workers. It aims to raise that figure into the hundreds of thousands.
Never before has an administration deliberately engineered a spike in unemployment of this size. The DOGE cuts may become the largest mass layoff in American history. These layoffs may spiral for the same reason large-scale layoffs often do: laid-off workers become poorer consumers who reduce their spending, fueling cuts in other sectors. In fact, dozens of businesses that were not directly affected by the cuts are already freezing hiring.
Worse, many of the agencies that DOGE has targeted for layoffs are important in disbursing services Americans depend on. If the agency follows through on plans to dramatically reduce staffing at the Social Security Administration, the program’s 73 million recipients may see delays in their benefit checks. Some could lose vital housing and food aid.
Planned cuts to the Internal Revenue Service will block Americans from receiving assistance just as tax season kicks into high gear, and are likely to delay tax refunds. Moreover, IRS staffing saves Americans far more than it costs, mostly through enforcement against extremely wealthy tax evaders.
The Consumer Financial Protection Bureau has been shuttered. Without it, consumers will be more vulnerable to the kind of fraud that helped turn the 2007-08 housing bubble into the years-long Great Recession.
Meanwhile, the administration’s plan to escalate cuts to scientific research poses a medium and long-term threat to the country’s competitiveness. These impacts will be even greater if the administration moves ahead with threatened reductions to federal student aid, undermining the educated workforce that underpins a world-class economy.
And the president is now calling for repeal of 2022’s CHIPS Act, which both Democrats and Republicans have hailed as vital to America’s semiconductor industry and therefore its technological edge.
The sky hasn’t fallen yet. But recent forecasts peg the likelihood of recession this year as rising. Consumer sentiment is trending downward, and economic growth for the quarter may turn negative. Even Trump himself has recently shifted from boasting of unparalleled growth ahead to cautioning that his recent moves might inflict “worthwhile” economic pain.
There’s still time for the administration to reverse course before the president’s ill-considered policies disprove economists’ maxim. The president is playing a dangerous game with America’s prosperity.
—
Views expressed in this column are the author’s own and not necessarily those of Elon University.