Trumponomics and the looming economic storm

Kim Dong-won
 
The author is a former invited professor of economics at Korea University.   


In his inaugural address in January, U.S. President Donald Trump declared, “From this moment on, America’s decline has ended, and America’s golden age has begun.” Inspired by William McKinley, the 25th U.S. president who played a significant role in ushering in America’s great 20th century, Trump seeks to emulate his tariff policies to build a presidential legacy of his own.
 
However, in the first 50 days of his administration, uncertainty surrounding a trade war and fears of an economic downturn sent the Nasdaq plummeting by 12 percent. Meanwhile, the Federal Reserve Bank of Atlanta’s forecast for first quarter GDP growth dropped from 2.9 percent on January 31 to -2.4 percent as of March 6.
 
Will “Trumponomics” — centered on tariffs, a manufacturing revival and government reform — truly deliver on the vision of “Make America Great Again?” Or will it plunge the U.S. economy into turmoil, bringing inflation and stagnation? 
 

 
The IT revolution fueled growth but deepened inequality 
 
After China’s accession to the World Trade Organization in 2001, the U.S. economy faltered under pressure from China’s rise. However, in the 2010s, the country rebounded, driven by a technology revolution and increased productivity. The U.S. share of global GDP, which had fallen from 30 percent in 2000 to 22.6 percent in 2010, climbed back to 26.5 percent by 2024.
 
Yet, beneath this economic resurgence lay mounting structural issues. American corporations prioritized high-value sectors like research and development while outsourcing manufacturing to low-cost global supply chains, primarily in China. This so-called fabless strategy led to a contraction of domestic manufacturing. Between 2000 and 2024, U.S. manufacturing employment declined by 25.8 percent, with its share of total employment shrinking from 12.6 percent to just 8 percent.
 
The tech-driven boom, particularly in software and stock markets, exacerbated income and wealth inequality. The resulting frustration among white working-class voters — dubbed the “white-loser backlash” — helped propel Trump to victory in 2016. Yet, during his first term, lacking sufficient policy preparation, Trump focused primarily on overturning Obama-era policies and imposing tariffs on China, while neglecting the structural challenges of deepening inequality, declining manufacturing jobs and middle-class erosion.
 
On March 5, in an address to Congress, Trump stated, “Tariffs will make America rich and great again.” Without acknowledging the failures of his first term, he reaffirmed his commitment to tariffs as a means to boost government revenue and attract foreign direct investment to create jobs, thus ushering in a new golden age.
 
Academic research, however, suggests tariffs have little impact on U.S. employment. Samsung Electronics’ direct investment in a washing machine plant in the U.S. created 1,500 jobs and benefited the local economy. However, it also saddled American consumers with an estimated $1.5 billion in additional costs compared to importing the same washers.
 
By nature, tariffs function as a tax imposed on domestic importers. Their effect on consumer prices depends on various factors, including exchange rate fluctuations, the pricing strategies of producers and importers and consumer loyalty to specific products.
 

President Donald Trump delivers remarks at the Business Roundtable’s quarterly meeting at the Business Roundtable headquarters on March 11 in Washington, DC. [GETTY/YONHAP]

 
For instance, the top U.S. import from China is the iPhone, produced by Foxconn in China for Apple. Given the strong brand loyalty among American consumers, tariffs on iPhones would likely be passed directly to consumers through higher prices. Similarly, imported auto parts and vehicles from Mexico, which are deeply integrated into American supply chains, could transfer 80 percent of tariff costs to consumers.
 
Although U.S. Treasury Secretary Scott Bessent has claimed that tariffs constitute a one-time price adjustment unrelated to inflation, concerns persist that they could heighten inflationary pressures.
 
Immigration and inflation: The hidden connection
 
Beyond tariffs, another uncertainty looms: Trump’s crackdown on immigration. In the 2024 election, Hispanic voters played a decisive role in Trump’s victory — a reaction to what some called a Hispanic lash. Many Hispanic workers, struggling with wage stagnation due to an influx of immigrants lacking permanent legal status, rallied behind Trump’s promise of mass deportations.
 
According to estimates by the Congressional Budget Office, some 6.7 million immigrants entered the United States without authorization between 2022 and 2024. As a result, retail workers’ real wages in December 2024 were 4.7 percent lower than they were in December 2019.

 
However, the massive influx of immigrants lacking permanent legal status was also instrumental in bringing inflation down from a peak of 8 percent in 2022 to just 2 percent by 2024. A halt to unauthorized immigration and mass deportations could exacerbate labor shortages and drive inflation back up.
 
As the administration has yet to unveil its fiscal policy, including potential spending cuts and tax reductions, it remains premature to assess the full impact of Trumponomics. However, the trade war and disruptions to global supply chains are likely to weigh negatively on U.S. economic growth. Efforts to streamline government efficiency may also introduce systemic instability, ultimately dampening total factor productivity and slowing growth.
 
While concerns regarding weakening consumer confidence and a looming recession grow, the Trump administration argues that such short-term hardships are inevitable during a period of transformation. U.S. Federal Reserve Chair Jerome Powell has signaled that the bank will calibrate its monetary policy to cushion the economy against the shocks stemming from Trump’s economic agenda.
 
Goldman Sachs recently lowered its U.S. GDP growth forecast for the year from 2.4 percent to 1.7 percent, raising the probability of a recession within the next 12 months from 15 percent to 20 percent. JPMorgan Chase adjusted its recession risk assessment from 30 percent to 40 percent.
 

Elon Musk arrives before the 60th Presidential Inauguration in the Rotunda of the U.S. Capitol in Washington, Jan. 20. [AP/YONHAP]

The risks of Silicon Valley’s influence in government
 
Another pressing concern is the growing influence of Silicon Valley’s tech elite within Trump’s second-term administration. Figures like Tesla and X owner Elon Musk not only backed Trump’s re-election but are now actively participating in his government. Their primary goal: to “reengineer” the federal bureaucracy, reducing deficits and enhancing efficiency through deregulation. Musk, in particular, leads the Department of Government Efficiency, which embodies this mission.

 
However, Silicon Valley’s technological ethos often clashes with the fundamental purpose of government: public service. While technology can rapidly transform industries, the public sector, by nature, must incorporate political considerations and social values, making efficiency-driven restructuring a challenge.
 
Furthermore, the pursuit of efficiency by tech elites could worsen urgent national issues, such as social safety nets. A deregulation push may also prioritize private corporate gains over public well-being, as seen in the potential removal of restrictions on autonomous vehicles and cryptocurrencies.
 
Historically, great empires derived their strength from magnanimity, trust and respect. Yet, Trump’s economic policies during the past 50 days suggest an approach that shifts America’s internal economic burdens onto the global stage through a trade war — diametrically opposed to the principles of imperial generosity and reliability. In a cabinet meeting on Feb. 26, Trump even described the European Union as “a bloc organized for the purpose of ripping off the United States.” His rhetoric suggests that America’s economic struggles stem not from domestic structural flaws but from its allies exploiting the country — a justification for tariffs as a means of “making them pay.”
 
As economic experts warn of escalating trade conflicts, some forecast that the global economy may face a crisis surpassing the 2008 financial meltdown, potentially enduring a prolonged downturn into the 2030s. The world must brace for what could be a long and severe economic winter. 
 
Translated using generative AI and edited by Korea JoongAng Daily staff. 

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