Trump Inflation: How Economic Policies Impacted Business and Consumers

Economic policies during the Trump administration significantly impacted businesses and consumers, particularly in terms of inflation. This article examines key policy measures enacted during that period and their effects on business operations and consumer spending.

Tax Measures and Business Costs

The Tax Cuts and Jobs Act (TCJA) of 2017 reduced the corporate tax rate from 35% to 21%, aiming to stimulate investment and economic growth by increasing after-tax profits for corporations. This provided businesses with additional cash flow for capital expenditures, research and development, or workforce expansion.

While large corporations benefited significantly, smaller businesses, especially pass-through entities, faced challenges due to the complexity of the 20% deduction for qualified business income. Eligibility criteria, income thresholds, and exclusions required these entities to engage in detailed tax planning, often with professional assistance.

The TCJA also introduced 100% bonus depreciation on qualified property, allowing businesses to fully expense certain investments in the year of purchase. This incentivized spending on new equipment and technology, offering immediate tax relief. However, the phase-out of this provision starting in 2023 is prompting businesses to reassess their long-term investment strategies.

Tariffs and Consumer Prices

The Trump administration’s tariffs, particularly those on Chinese imports under Section 301 of the Trade Act of 1974, sought to protect domestic industries and address trade imbalances but also increased costs for importers. These costs were often passed on to consumers, raising retail prices. For example, tariffs on imported washing machines led to an average price hike of 12%, contributing to inflation.

Industries dependent on imported raw materials, such as automotive and manufacturing, faced higher production costs. To mitigate these expenses, companies explored alternative markets or invested in domestic supply chains, though these strategies required significant time and resources to implement.

Monetary Policy Coordination

Fiscal measures under the Trump administration, including tax reforms and increased federal spending, aimed to stimulate economic growth. At the same time, the Federal Reserve, led by Chair Jerome Powell, adjusted interest rates to manage inflation and stabilize the economy.

The Federal Reserve’s gradual rate hikes were intended to prevent economic overheating, balancing growth with inflation control. These adjustments affected borrowing costs, leading to higher mortgage rates and influencing consumer spending. Businesses also faced more expensive financing for expansion, requiring careful financial planning.

Shifts in Employment Rates

Unemployment rates reached a 50-year low of 3.5% in late 2019, driven by deregulation efforts and policies supporting domestic manufacturing and energy production. These measures created a favorable environment for job growth, particularly in sectors like technology and healthcare, which benefited from industry trends and policy incentives.

While urban areas saw substantial job gains, rural and economically distressed regions continued to face employment challenges. The uneven distribution of job growth highlighted persistent disparities in regional economic conditions.

Federal Spending Adjustments

Federal spending under the Trump administration included fiscal expansion and targeted budgetary cuts. Defense spending increased by nearly $100 billion between 2017 and 2020, modernizing military capabilities and stimulating job creation through domestic defense contractors. Meanwhile, discretionary spending for programs like healthcare and environmental protections faced reductions, raising concerns about the economic impact on low-income households.

The administration emphasized infrastructure investment, proposing initiatives like the $1.5 trillion infrastructure plan, which relied heavily on state and private contributions. This funding approach created uncertainty for municipalities and businesses dependent on federal support. Additionally, the federal deficit surpassed $1 trillion in 2019, raising questions about the sustainability of these fiscal policies and their long-term implications for economic flexibility.