5 ways Trump has shaped the economy in 6 months

President Trump sailed into the White House last year on confidence in his ability to handle the economy following 40-year high inflation and deep-seated financial frustration among voters.

Here are the big economic hallmarks of the first six months of his second term, spanning taxes, tariffs, deficits, markets, and the dollar — and how they could affect regular Americans.

Trade war 2.0

Trump has massively scaled up the reset of U.S. trade policy that he started during his first term and that was left largely in place during the Biden administration.

While his country-specific tariffs have been pushed back to Aug. 1 and multiple sketches of bilateral trade deals have been announced, the overall U.S. tariff level is around its highest levels in a century, mostly due to tariffs on China.

The tariff rate on China is now about 50 percent, according to different estimates, This is sparking concerns about a broader “decoupling” of the world’s two largest economies.

The Yale Budget Lab put the overall U.S. tariff level at 20.2 percent this week and Fitch Ratings put it at 14.1 percent last month. Total tariff rates have a large statistical range as they can be assembled and weighted in different ways.

Trump and the White House have announced trade deals with China, Japan, Vietnam, Indonesia and the United Kingdom — but many specifics are still forthcoming.

Tariffs have likely started to show up in consumer prices. The consumer price index (CPI) ticked up to a 2.7-percent annual increase in June from 2.4 percent in May, and tariffs are expected to drive it higher.

Many economists — including those at the Federal Reserve — have cast the tariffs in stagflationary terms, meaning that they’ll push prices higher while detracting from growth.

Gross domestic product (GDP) contracted in the first quarter as importers pulled orders in ahead of tariffs. The Atlanta Fed is forecasting 2.4-percent annualized growth for the second quarter, which would be solid.

Trump has pursued his trade war with the stated goal of bringing back outsourced jobs and boost household income, but there are few signs of this happening so far.

Wage growth has fallen under Trump from a 4.2-percent annual increase in February to 3.9 percent in June. U.S. wage growth has stagnated over the long term. Accounting for inflation, purchasing power of U.S. paychecks grew by just over $2 between 1964 and 2018, according to Pew Research.

The number of U.S. manufacturing jobs, which Trump has touted as getting a boost from tariffs, have been largely stagnant since February at 12.8 million.

Tax cuts 2.0

Earlier this month, Trump signed $4.5 trillion worth of tax cuts into law, most of which were an extension of the cuts he signed in 2017.

The passage of the president's tax-cut bill was a major win for Trump and the Republican Party, making it through Congress much faster than analysts had expected. Experts told The Hill they didn’t think it would happen until the very end of this year, especially because the House and Senate were pursuing differing reconciliation strategies to get it done.

However, the tax cuts were expensive and are expected to add substantially to the national debt. Excluding interest, the law will cost $3.4 trillion through the next nine years. That will be added to the total U.S. debt stock of about $36 trillion.

Fights over the debt, which regularly require the acceptable limit to be raised by Congress, have resulted in a downgrade of U.S. credit worthiness by all the big credit agencies. Trump’s tax law included a $4.1 trillion increase in the ceiling so the issue won’t be a political one for the time being.

Debt costs could be paid for by future reductions to social programs. The tax law will kick 10 million Americans off of public health insurance in 2024.

While tax cuts are traditionally thought of as economically stimulative, the congressional tax scorer projected minimal growth resulting from the Senate’s version of the bill at just 1.8 percent.

The Congressional Research Service (CRS) found in 2019 that real wages increased following the 2017 tax law by 1.2 percent, an amount that smaller than the overall growth in compensation in those years.

“Ordinary workers had very little growth in wage rates” resulting from the cuts, CRS found.

Asked what the main point of the tax law is, University of Michigan tax law professor Reuven Avi-Yonah pointed to its overall redistributive effects, which Congressional Budget Office analyses show to take resources from the poor to give to the rich.

“From a policy perspective, the main point is reverse Robin Hood," he said in an interview. “That’s fundamentally there."

The decline of the dollar

The U.S. dollar has declined precipitously in value relative to other currencies since Trump has taken office, a move that has flouted conventional economic thinking.

Since inauguration day, the DXY dollar index has dropped 11 percent to 97.3 from 109.4 even as tariffs are now at near century-high levels.

This has flummoxed analysts, who are venturing guesses about what’s going on.

While the dollar decline decreases the purchasing power of the dollar abroad, it could also bolster U.S. industrial production and the export sector in line with longer-term U.S. economic objectives.

"I'm a person that likes a strong dollar, but a weak dollar makes you a hell of a lot more money," Trump said Friday.

"When we have a strong dollar, one thing happens: It sounds good. But you don't do any tourism, you can't sell tractors, you can't sell trucks, you can't sell anything," he said.

Top White House economists have also talked up the benefits of a weaker dollar.

“The reserve function of the dollar has caused persistent currency distortions,” Council of Economic Advisers chair Stephen Miran said earlier this year.

Miran has argued in the past that “persistent dollar overvaluation … prevents the balancing of international trade, and this overvaluation is driven by inelastic demand for reserve assets.”

In other words, scaring investors away from the dollar may work to the U.S.’s advantage.

Some analysts have compared the decline to the Plaza Accord, a 1985 currency agreement that devalued the dollar and reduced the trade deficit.

The financial world is starting to see results.

“​​With the dollar now firmly back within our estimated fair-value range, we view the risks as more balanced than at any time during the last three years,” analysts for Vanguard said Thursday.

Attacks on the Fed

Trump’s first six months have also been marked by vociferous and repeated attacks from the president on the Federal Reserve and Chair Jerome Powell.

Trump reportedly went so far as to pitch the idea of firing Powell to GOP lawmakers last week before saying that it was “highly unlikely.”

While the Fed seems content to maintain its pause on cuts for now, Trump’s aggressions have shown up in financial markets. More substantially, they’ve also changed the conversation on monetary policy.

Economists have started to worry about a Fed that takes its cues from the White House, making it less independent and more susceptible to short-term political pressures.

They’re worried that the Fed could become more tolerant of inflation, which could lead to financial repression — when the inflation rate surpasses the rate of interest, leading to negative long-term returns on capital.

Some supporters of the president have even questioned the 1951 accord between the Fed and the Treasury, whereby the Fed handles the money supply and the Treasury issues bonds.

Former Fed Governor Kevin Warsh, who is often listed as a successor to Powell, floated “a new accord” to replace the 1951 agreement. Warsh said the traditionally independent Fed and the Treasury Department could work together to communicate moves about the Fed’s balance sheet.

Markets down, markets up

Stock markets took a dive at the outset of Trump’s trade war and then rallied as different deals were announced, especially the one with China. The

The market narrative spurred by the tariffs has reversed, and the S&P 500 index is now at all-time highs.

Ownership of the stock market is heavily skewed toward the wealthiest Americans. The poorest half of Americans own just one percent of the stock.

Despite the sizzling rebound in stocks, the bond market is still jittery, following a yield spike in April that prompted a course-correction on tariffs from the White House.

Consumer sentiment as measured by the University of Michigan has rebounded from lows hit during the height of the tariff rollout, but is still quite a bit lower than it was before the pandemic.

Business sentiment is still flagging in various polls, and the latest anecdotal survey of the economy by the Fed is filled with complaints about policy uncertainty.

Markets are also processing multiple new pieces of legislation on cryptocurrency, which have classified digital currencies as forms of payment rather than assets.