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Trumponomics and the US Midterm Elections

Following Donald Trump’s surprise victory in the 2016 US presidential election, many economists predicted that he would usher in another global recession, despite having inherited an economy with sound fundamentals. Were those predictions wrong, or simply premature?

It is a truism that US midterm elections are referenda on the president, and that the incumbent’s party performs well when economic indicators are strong. Yet in the age of Donald Trump, this rule – like so many others – is being challenged. Despite second-quarter US GDP growth of 4.2% and historically low unemployment, Trump’s approval rating has yet to reach 50%.

Trump and the Republicans’ struggle to harness the political dividends of a strong economy may owe something to the president’s unconventional brand of politicking. But with US stock markets growing increasingly jittery in the lead-up to the election on November 6, another possible explanation is that economic fundamentals are not as sound as Trump would like to think.

In fact, in 2016, the Nobel laureate economist Paul Krugman predicted that Trump’s election would trigger the next global recession. And Krugman wasn’t the only one. Many economists, both before and after the 2016 election, feared that Trump’s trade protectionism, immigration restrictions, and rejection of multilateralism would send the economy into a tailspin. So far, those fears haven’t been borne out. Yet, far from settling the debate over Trump’s “America First” agenda and its economic effects, today’s strong indicators have raised even more questions about the direction of the economy.