The economic benefits of Donald Trump’s second term

Hello free Sunday lunches.

As next week marks the one-year anniversary of the 2024 US elections, I thought it would be appropriate to finally take up an ardent reader’s challenge to “do a counter-consensus analysis of Donald Trump’s second term.”

I took that to mean pointing out some underappreciated economic benefits of the president’s policy agenda — whether by design or otherwise. Comes with a trigger warning, here’s what I found.

First, Trump’s “America First” agenda has forced world leaders to increase spending, enact reforms, and pursue new trade deals and relationships.

For example, his administration’s threat to cut NATO funding has increased European defense spending commitments. This has boosted regional stock markets and manufacturers this year.

The US president’s isolationism – both on trade and security – has bolstered the case for easing the constitutionally enshrined “debt brake”, allowing the EU’s largest economy to move away from fiscal frugality.

Global policymakers have also moved to improve competitiveness. In Canada, public support for reducing interprovincial trade barriers surged when Trump made his tariff threats. Canadian Prime Minister Mark Carney has launched efforts to liberalize the country’s domestic market. In India, punitive taxes have accelerated tax reform.

As the tariff wall around the United States has widened, nations and blocs have eagerly entered into trade deals. For example, since Trump’s re-election, the EU has concluded three free trade agreements – with Mercosur, Mexico and Indonesia – and is accelerating another with India. On Tuesday, China and ASEAN signed a strengthened free trade agreement.

“The world has been warned that it cannot profit freely from American spending and consumers,” says Marko Papic, chief strategist at BCA Research. “There is now a catalyst to pursue reform and reduce dependence on America, which supports long-term economic growth and stability. »

It is difficult to imagine a counterfactual situation in which policy changes would have occurred with the same speed and concentration.

Another “advantage” is the weakness of the US dollar: “A weaker dollar tends to be beneficial for global growth, particularly for emerging markets,” says Dominic White, chief economist at Absolute Strategy Research. “This provides a boost to borrowers’ dollar balance sheets and terms of trade.” The administration’s moves – from protectionism and attacks on the independence of the Federal Reserve to its weaponization of uncertainty – have contributed to the currency’s slide.

Indeed, global economic activity, and trade in particular, has been surprisingly robust this year. Efforts to preempt tariffs played a role, alongside policy responses to Trump and the depreciation of the dollar. (Weakening the initial “reciprocal tariffs” also helped.)

Second, tariffs have some domestic “benefits” that the White House could point to.

Analysis from the Yale Budget Lab finds that industrial production in “tariff-sensitive sectors increased sharply” this year, based on July data. (This grouping weights production based on the share of imports in production and actual effective tariff rates.)

Martha Gimbel, executive director of YBL, cautions that this could, in part, reflect a return to trend, following a decline in production late last year. But she adds that it could also be a response from some American manufacturers to the tariffs.

“All indications are that tariffs are having a net negative impact on the U.S. economy as a whole, but there are of course companies that benefit from protectionism,” Gimbel says. “For those producing simple items with relatively few external inputs, tariffs could already support production. »

As an indication, a survey carried out in June by the consulting firm West Monroe revealed that more than a third of American companies say they benefit from the positive effects of customs duties.

Tariff revenues also offset some of the Trump administration’s fiscal easing.

In fiscal year 2025, the U.S. budget deficit narrowed slightly as tariff revenues reached a record high. Over the next decade, the Tax Foundation expects tariffs to increase by $2.3 billion, after accounting for their negative economic effects. In August, S&P Global maintained its credit rating on U.S. government debt citing “robust tariff revenues,” although the country’s long-term debt trajectory remains a concern.

Notably, the U.S. Supreme Court’s upcoming review of the legality of Trump’s tariffs could put that revenue at risk.

Third, some White House measures contribute to the short-term resilience of the US economy, which was under strain before Trump took office.

“While the One Big Beautiful Bill Act has its ugly sides, the full, immediate, and permanent spending provisions for short-term investments and R&D are the best business cost recovery legislation ever signed into law,” says Erica York, vice president of federal tax policy at the Tax Foundation.

“By reducing the cost of capital for new investments, they will support offshoring efforts and AI-related investments,” York adds.

Goldman Sachs estimates that various investment incentives under OBBBA could increase S&P 500 companies’ cash flows by about 5% in 2026 and encourage additional capital and innovation spending.

The Tax Foundation projects that permanent incentives for investment in equipment and machinery will increase long-term U.S. GDP by 0.6 percent. The broader plan should temporarily give the United States the third-best cost of capital recovery tax system in the OECD, up from 21st, according to the think tank.

Trump’s tariff threats and global deal-making also supported an increase in foreign direct investment commitments, particularly in semiconductors. The June 8 edition of this newsletter explained why we should be skeptical of investment promises. Yet discounted real FDI in the second quarter reached its highest level since 2022.

The administration’s lighter regulation of artificial intelligence, cryptocurrencies and the financial sector, despite risks to stability, has kept markets and pockets of the private sector humming.

“Vibes are important for investors,” adds YBL’s Gimbel. “Signals in favor of deregulation, particularly technological, will have contributed to exuberance.”

Indeed, a recent analysis from the Bank for International Settlements highlights how “other factors” more than offset the negative effects of tariffs on the S&P 500 and supported its rise since the president’s April 2 announcement of “liberation day.”

The rise in the US stock market has, in turn, supported spending by wealthier cohorts, while the less well-off face growing stress.

In summary, several White House measures have supported economic activity – notably by fostering the technology boom – even as its broader policies undermine it.

Along the same lines, it is worth recognizing the surge in productivity in the United States this year. In the first half of 2025, output per labor hour in the durable goods sector increased by 4.9% on an annualized basis, according to Juan Manuel Correa of ​​BCA Research. That’s the fastest in nearly two decades, not including post-recession recoveries.

This looks set to continue. The Atlanta Fed’s estimate for third-quarter annual real GDP growth is just under 4 percent, and the labor market is cooling.

A Correa analysis of U.S. industrial output per hours worked shows that productivity gains are concentrated in high-tech hardware sectors, including computers, electrical equipment and aerospace. “These are part of a broader effort to produce computing power, semiconductors and data centers, and are not particularly labor intensive,” he says.

The administration contributes to these high-end technology gains through investment incentives, deregulation and tariff exclusions, Correa adds. (A broader crackdown on illegal and legal immigration also encourages a shift toward more mechanical and less labor-intensive production.)

So there is a modest industrial boom in the United States that could increase productivity, even if it is not the job-rich manufacturing revival that Trump promised.

Between Maga’s fervent supporters and those who cannot (or even do not want to) attribute anything positive (however defined) to Trump, the exercise was not easy.

Are there any benefits I missed? Send yours to freelunch@ft.com or to X @tejparikh90.

To be clear, my views on the net and long-term economic effects of the Trump administration’s policies remain largely negative, as I have outlined in depth in previous editions.

It is also true that some positive things may have happened in Trump’s absence and that he had some luck – for example with long-term technology trends and falling interest rates. Some benefits are unintended, while others simply offset the impact of negative measures, which may soon dominate.

Still, it was a worthwhile task. Actively searching for data points that run counter to our priorities protects against bias and provides a more complete economic picture.

I look forward to more of your challenges.

Food for thought

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Free Sunday Lunch is edited by Harvey Nriapia