When Donald Trump won the 2016 presidential election, I predicted gloom. “The policies he favors … pose many land mines for the economy,” I wrote the day after the election. The result, I suggested, could be a prompt Trump recession.
There was no Trump recession. Quite the contrary, in fact. Economic growth accelerated modestly in 2017. Job growth has continued to improve steadily. The biggest financial story in 2017 is the stock market, with the S&P 500 index up a robust 20% for the year. Americans feel increasingly confident about their prospects, and the business tax cuts Congress just passed ought to keep the party going.
How did I get this so wrong?
Many critics have weighed in via email and Twitter, arguing that I’m a fake-news practitioner biased against Trump. They’re wrong. It’s true that I’m turned off by Trump’s bombast, by his untruths, and by his racially charged incitements. But I also concede that Trump won legitimately in 2016, in large part because he understood the frustrations of millions of disaffected voters his many opponents in both parties talked down to or simply ignored. Voters wanted change. Trump delivered it.
Here’s why I guessed wrong about Trump’s impact on the economy: I expected him to do what he said he would do. Instead, Trump has done only some of what he said he would do, and apparently accepted the counsel of cooler heads persuading him to deep-six several of his most troubling campaign promises. People who know Trump say it’s a mistake to take everything he says literally. Instead, they advise, follow the direction of his thinking, while leaving considerable room for detours. This is the lesson I hope to take from 2017.
As a candidate, Trump promised several things that would almost certainly harm the economy if put into action:
Tough new limits on trade with China, including new tariffs on imports as high as 45%
Canceling the North American Free Trade Agreement if the United States doesn’t get more favorable terms, and imposing tariffs in the range of 35% on imports from Mexico and some other countries
Expelling all 11.3 million undocumented immigrants in the United States, and putting tough new limits on legal immigration
Overhauling the Federal Reserve
On three of those four issues, Trump has done nothing (yet). As a candidate, he bashed the Fed and denigrated Chair Janet Yellen, whom investors thoroughly respect for her careful leadership of one of the world’s most powerful institutions. As president, however, Trump became a quick convert to Yellen’s style of handling the economy. And his choice to succeed her, Jerome Powell, is a Yellenite whom markets like because he seems unlikely to rock the boat at the Fed.
On trade, Trump’s minions are, in fact, working behind the scenes to revamp NAFTA and the U.S. trade relationship with China. But so far, Trump has declined several opportunities to take tough steps that might disrupt the status quo.
On immigration, Trump has in fact cracked down, to some extent, on undocumented migrants and imposed some new limits on legal immigration. But even this hasn’t been the Gestapo-like crusade some economists and business leaders feared.
Meanwhile, Trump has delivered the one thing companies love most: tax cuts.
As the 2016 election neared, several well-known research groups—including Moody’s Analytics, Citibank, Oxford Economics and Macroeconomic Advisers—estimated the impact Trump’s policies would have on the economy. They examined all of his policies, not just the salubrious ones. And all of them saw trouble—declining growth, falling stock values, rising unemployment, and a possible or likely recession. Those analyses, based on Trump’s full set of campaign promises, prompted gloomy stories like the one I wrote right after the election.
Trump fooled us in 2017. He only pursued policies likely to be good for the economy, while setting aside those that most troubled economists and business owners. Will he do the same in 2018? Let’s hope so. Trade wars would still raise prices, kill jobs and hurt workers. And the economy arguably needs more legal immigrants, not fewer, to help fill the 6 million job openings employers can’t fill and crank up production even more.
Trump clearly revels in the frothy stock market, tweeting frequently about how his policies are driving stocks to one record high after another. Maybe he’ll quit while he’s ahead, and find a way to declare victory on trade and immigration without changing much. Some campaign promises are best left unfulfilled. And some predictions are subject to revision.
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Rick Newman is the author of four books, including Rebounders: How Winners Pivot from Setback to Success. Follow him on Twitter: @rickjnewman