President Donald Trump has put the US economy through significant challenges since taking office. His policies include imposing large and ever-shifting tariffs on imports, which have driven up consumer costs and business uncertainty. He also engineered a collapse in both legal and unauthorized immigration, undermining growth and labor specialization. Additionally, Trump manufactured a global energy crisis that pushed up gas prices for Americans while threatening a worldwide recession.
Despite these headwinds, the American economy continues to move forward. US GDP rose at a 2 percent annual rate in the first quarter of 2026 and a 2.1 percent pace in 2025, far outstripping growth in most other advanced economies. The unemployment rate remains low at 4.3 percent, and wages rose faster than inflation throughout 2025. However, not all indicators are positive. Last month, for the first time since 2023, real wages fell as annual inflation hit 3.8 percent.
If an economist in January 2025 had been told that the new president would launch a haphazard global trade war, throttle legal immigration, and start a conflict with Iran that closed the Strait of Hormuz, they would have predicted a far worse scenario than what we see today. Some might conclude that Trump's policies were not that costly. However, another interpretation is that Trump could have presided over a pristine economy if he had refrained from increasing import prices, reducing labor-force growth, and launching a war near the heart of the global energy market.
How Trump Slowed US Economic Growth
To understand the harm from Trump's policies, one must consider what the economy would look like without them. According to the Peterson Institute for International Economics, tariffs reduced America's growth rate in 2025 by 0.23 percentage points. This figure likely understates the full impact, as it does not account for investor uncertainty. Outside the booming AI sector, business investment has fallen. Excluding AI-related categories, business investment declined at a 3 percent annualized rate over the last four quarters, compared to a 5 percent average increase in the prior decade. This collapse shaved about 0.4 percentage points off 2025 GDP growth.
Without Trump's immigration policies, the labor force would be larger and economic output higher. A Brookings Institution report found that last year's decline in immigration reduced GDP by up to 0.26 percentage points. Combined, these analyses suggest growth would have been about 0.9 percentage points higher in 2025 without Trump's trade and immigration policies. The impact of the Iran war on 2026 growth is unclear, but most analysts believe it has marginally dampened output.
Trump Engineered Higher Prices
Inflation data tells a similar story. Trump's tariffs have raised import costs, with businesses passing on some burden to consumers. A Dallas Federal Reserve report shows that core inflation would have been just 2.3 percent in March 2026 instead of 3.2 percent without tariff impacts. This does not account for the Iran war's price effects. A separate Federal Reserve paper estimates that a three-month closure of the Strait of Hormuz would add 0.35 points to headline inflation; six months adds 0.79 points; nine months adds 1.47 points. Without Trump's tariffs and warmaking, inflation would likely be more than one point lower, closer to the Fed's 2 percent target.
In that alternate universe, Americans would also enjoy lower borrowing costs. Persistent inflation has constrained the Fed's willingness to lower interest rates and motivated private lenders to offer less generous terms. Since the Iran war started in late February, mortgage rates have climbed.
We Had a Good Thing
America's economy is still growing, and inflation is not exceptionally high by historic standards. However, this resilience is largely due to tailwinds unrelated to Trump's policies. The AI boom is driving massive investment in data centers, software, and information processing, lifting stock values and consumer spending among wealthy households. Additionally, inflation was poised to decline as supply chains normalized after post-COVID shocks. In short, Trump squandered a fortuitous inheritance.
