Trump’s US Economy: Solid Footing and Projected Growth

Trump’s US Economy: Solid Footing and Projected Growth

The US economy is currently on solid footing, with economists at Bank of America (BofA) projecting ongoing strength through next year. BofA’s economics team, led by Claudio Irigoyen, anticipates an annualized growth rate of 2.4% in 2025, exceeding current consensus estimates of 2%. This projection comes despite uncertainties surrounding President-elect Donald Trump’s proposed economic policies.

Trump’s Policies: Impact on Growth and Inflation

Trump’s campaign promises include tariffs on imported goods, tax cuts for corporations, and immigration curbs, which economists view as potentially inflationary. These proposals could also hinder economic growth and exert pressure on the already elevated federal deficit. Moreover, higher interest rates and a hawkish tariff policy could strengthen the US dollar and have spillover effects on global financial conditions, creating potential shocks.

US Resilience Amidst Economic Storm

Despite these uncertainties, the US is well-equipped to weather any economic storms that may follow Trump’s agenda. “The US imports a lot of goods, but it doesn’t import recessions,” said Aditya Bhave, senior US economist at BofA. “It only exports recessions.” Bhave believes that any shifts in US trade policy would pose greater risks to the global economy than to the US, due to its resilience compared to other developed nations.

Domestic Growth Trends and Consumer Confidence

Recent domestic growth trends have been remarkable, providing evidence of economic strength. Consumer confidence is at its highest level in 18 months, and US economic output has not been this robust since April 2022. Retail sales exceeded estimates in October, unemployment remains around 4%, and inflation has moderated while continuing its path downwards towards 2%.

Tariffs: Potential Impact and BofA’s Outlook

Tariffs, a significant campaign promise of President-elect Trump, have been widely discussed. He has proposed imposing blanket tariffs of at least 10% on all trading partners, including a 60% tariff on Chinese imports. If countries retaliate with their own duties, a “tit-for-tat” trade war could ensue, leading to prolonged elevated inflation. However, BofA does not foresee such a scenario, noting that its “baseline scenario is for tariffs on China and elsewhere” and that it expects levies to be “less” than promised. The firm is cautiously optimistic that a full-blown trade war can be avoided.

Overall Impact of Tariffs

Overall, tariffs can disrupt capital expenditures and exports. However, given that the US imports more goods and services from potential tariff targets than it exports, “tariffs pose a much greater threat to those regions than to the US,” according to Bhave.