Trump’s Economy Is Flashing Red

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Analysis Trump’s Economy Is Flashing Red Trade wars, rising prices, falling confidence, and sinking stock markets are not what Wall Street or Main Street voted for. By Keith Johnson , a reporter at Foreign Policy covering geoeconomics and energy. In the foreground is a man blurred from view. Behind him is a screen with stock market numbers. Traders work on the floor of the New York Stock Exchange in New York City on March 4. Michael M. Santiago/Getty Images My FP: Follow topics and authors to get straight to what you like. Exclusively for FP subscribers. Subscribe Now | Log In Economics United States March 6, 2025, 2:44 PM Comment icon View Comments ( 8 ) Just a few weeks before the 2024 presidential election in the United States, the Economist explained why the country’s economy was the “ envy of the world ,” with low unemployment, inflation under control, and a growth rate unmatched by any advanced economy. Trump’s Second Term Ongoing reports and analysis Even so, widespread domestic dissatisfaction with the world’s top-performing economy helped propel Donald Trump to victory. It was also partly due to the prices of grocery staples such as eggs—something Trump promised to lower early on in his second term as president but has yet to fully accomplish. Just a few weeks before the 2024 presidential election in the United States, the Economist explained why the country’s economy was the “ envy of the world ,” with low unemployment, inflation under control, and a growth rate unmatched by any advanced economy. Trump’s Second Term Ongoing reports and analysis Even so, widespread domestic dissatisfaction with the world’s top-performing economy helped propel Donald Trump to victory. It was also partly due to the prices of grocery staples such as eggs—something Trump promised to lower early on in his second term as president but has yet to fully accomplish . Fast-forward a few months, and the U.S. economy is not the envy of many anymore. There are few signs of optimism among the traditional economic indicators, from capital markets to consumer confidence. Trump has, as promised, brought an economic revolution to the United States—just not in a good way. U.S. stock markets have not only given up all the gains they piled on in the wake of Trump’s triumph, they are still sinking . Every other day brings a new “worst day since” headline for either the broad S&P 500 index, the narrower Dow Jones Industrial Average, or the tech-heavy Nasdaq. Markets are currently ruled by “ extreme fear, ” according to CNN’s Fear and Greed Index. Bond markets, those traditional and ruthless vigilantes , are of two minds. Recently, though, the predominant concern is that Trump’s economic policies, especially on trade, will be such a drag on growth that the Federal Reserve will have to cut interest rates to counteract the inflation that Trump is also baking in with his import taxes and higher prices for businesses and consumers. ( He launched his biggest trade war yet earlier this week and then carved out exceptions for the automotive industry after the heads of three major U.S. automakers got him on the phone; he also exempted one of his targets, Mexico, after another phone call.) Global bond markets are holding a yard sale because of Trump’s tariffs and economic arson, and also because Europe has decided to spend big on bombs and missiles . Not to be overlooked is a wonky bond metric, an inverted yield curve on a couple of short-maturity U.S. government bonds, that has historically been a harbinger of recession. Consumer confidence is dropping faster than it has in more than three years because consumers are worried about higher prices from Trump’s tariffs on the United States’ top trading partners. (Trump’s commerce secretary, Howard Lutnick, insists that the negative economic data from recent weeks is actually Biden administration data.) One seemingly bright spot, a manufacturing index known as the PMI, is itself a canary in the coal mine because the uptick in manufacturing activity is a front-loaded response to get ahead of the avalanche of trade barriers and rising prices for manufacturing inputs. Despite Trump’s entreaties , farmers are not “having fun.” China’s retaliations against the latest round of U.S. tariffs will target more than $20 billion in dwindling agricultural export markets, which were already small due to Trump’s trade wars during his first term. The U.S. dollar keeps falling —and not just against European economies but against the entire basket of other world currencies. That is the opposite of what should happen if tariff walls are erected, which indicates a much deeper lack of confidence in the greenback. The employment picture doesn’t look much better, though the official numbers won’t be out until March 7. One early bellwether on U.S. payrolls indicates a sharp slowdown in new hiring last month. Economists making economic growth predictions consistently lowballed what Trump would actually do on trade and are now hustling to downgrade their outlooks for 2025. One much-watched metric actually predicts a severe contraction in U.S. economic growth in the first quarter, a massive shift from expected growth just weeks earlier. Read More Two workers in matching gray uniforms are seen from behind as they position machinery and tools around the metal frame of a car. Scaffolding and other factory equipment criss-cross the room behind them. Trump Can Make a Deal to Save America’s Auto Industry Beijing’s capture of global markets offers a U.S. road map. Argument | Charles Yang Canadian Prime Minister Justin Trudeau speaks during a news conference. Trump Plunges U.S. Into Trade War With Canada, Mexico, China All three countries have vowed retaliatory measures against Washington. Report | Alexandra Sharp , Lili Pike In the trenches, or the quays, the picture isn’t much prettier. The people who buy, ship, offload, forward, and otherwise manage the massive flow of goods that keep the U.S. economy humming are struggling due to Trump’s on-again, off-again, on-again, off-again but only partially, and only for a month, trade wars. Lars Jensen of Vespucci Maritime said that “it would be pure folly to make strategic moves when there’s no idea even what the rules are tomorrow,” Bloomberg ’s Supply Lines newsletter reported from the big shipping confab in Long Beach, California, this week. Sign up for Editors’ Picks A curated selection of FP’s must-read stories. Sign Up By submitting your email, you agree to the Privacy Policy and Terms of Use and to receive email correspondence from us. You may opt out at any time. Enter your email Sign Up ✓ Signed Up You’re on the list! More ways to stay updated on global news: FP Live Enter your email Sign Up ✓ Signed Up World Brief Enter your email Sign Up ✓ Signed Up China Brief Enter your email Sign Up ✓ Signed Up South Asia Brief Enter your email Sign Up ✓ Signed Up Situation Report Enter your email Sign Up ✓ Signed Up View All Newsletters Yet this—despite the Wall Street optimism last fall about big tax cuts and bigger regulatory rollbacks, and a sudden realization now —is exactly what Trump campaigned on. He promised trade wars and a sharp increase in taxes on businesses and consumers, he fought for a weaker dollar, and he vowed to defenestrate the Federal Reserve and eviscerate the rule of law—two things that underpin U.S. economic and financial health and hegemony. One big difference from the first Trump term is that the stock market corrections—and they have been especially harsh since Trump pulled the trigger on his trade war—do not appear to have made him recalibrate, unlike the first time around, when he viewed the daily ticker as a referendum. Bond markets are having no more luck, but that might be by design. Shortly before the election, billionaire Elon Musk, Trump’s biggest backer during the campaign and now his hatchet-cum-chainsaw man gutting the federal government, explicitly stated that the goal was to inflict short-term pain, including a few market crashes, in order to put the U.S. economy on a healthier footing. The problem is that, so far, the gains are looking to be as ephemeral or as invented as Musk’s government cost savings. A few decades ago, a Republican candidate for president was roundly and repeatedly mocked for running on “voodoo economics,” which, of course, soon became gospel for the GOP. This is like voodoo, except the sharp pins and pain don’t only get jabbed into dolls. This post is part of FP’s ongoing coverage of the Trump administration . Follow along here . Keith Johnson is a reporter at Foreign Policy covering geoeconomics and energy. X: @KFJ_FP Read More On Donald Trump | Economics | Trade Policy & Agreements | United States Join the Conversation Commenting on this and other recent articles is just one benefit of a Foreign Policy subscription. Already a subscriber? Log In . Subscribe Subscribe View 8 Comments Join the Conversation Join the conversation on this and other recent Foreign Policy articles when you subscribe now. Subscribe Subscribe Not your account? Log out View 8 Comments Join the Conversation Please follow our comment guidelines , stay on topic, and be civil, courteous, and respectful of others’ beliefs. You are commenting as . Change your username | Log out Change your username: Username I agree to abide by FP’s comment guidelines . 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