Trump has proved his doubters wrong

Telegraph

18 hours ago

The stock market is hitting fresh record highs every day. Jobs are being created faster than expected. And a budget – oddly known as the ' big beautiful bill ' – has been passed by Congress.
Donald Trump's second term in the White House got off to a rocky start, with the chaotic introduction of tariffs and public rows with Elon Musk over cost-cutting. But in the last few weeks one point has become clear: it is back on track.
In reality, the second term will be every bit as good for the economy as the first one was. Trump is already proving his doubters wrong – and the United States will easily outgrow the rest of the world over the remainder of the decade.
Rewind a few months, and money was getting out of the US as fast as possible. The stock market crashed in the wake of 'liberation day', Trump's imposition of huge tariffs on the rest of the world. The president was rowing in public with Jerome Powell, the chairman of the Federal Reserve, and with Musk, his 'buddy-in-chief'.
The mainstream economic forecasters were predicting a spike in inflation and a potential recession, while business leaders feared shortages in the shops as the tariffs disrupted supply chains. It was, to put it politely, chaos.
In the last few weeks, however, everything has started to turn around. For all the talk of a big move into European assets, it is Wall Street that has been hitting record highs on an almost daily basis.
On Thursday, we learnt that the economy has created 147,000 new jobs over the last month, far exceeding expectations, and suggesting that growth remains resilient.
By the time politicians headed off for the July 4 weekend, Congress had agreed on a budget for the next year, allowing the tax cuts from the first term to be extended and pushing through extra measures to boost output. Add it all up, and one point is clear.
The 'Trump bump' is back.
Indeed, if anything the economy should start to strengthen from here. The big beautiful bill may take risks with the deficit – after all, Trump never claimed to be a fiscal conservative – but it should also help the economy. Tips and overtime will be tax-free, a move designed to encourage people to work harder and to put in more hours.
And much of Joe Biden's extravagant spending on renewable energy will be scaled back. While the Green Blob will scream furiously about their subsidies being cut, the bills were running out of control and some order had to be restored. Enough will be left in place to make sure America transitions to clean energy and almost certainly at lower cost, and more quickly, than Europe.
Even the tariffs are starting to make sense. Most of the very high ones have been negotiated down to manageable levels, although the EU faces a cliff edge next week, and its negotiators are so arrogant and inept it could end up facing 50pc levies.
But elsewhere, Trump is imposing a fairly standard 10pc on imports, compared to the 2.5pc average the US used to levy, which is hardly unusual across much of the world. The trade deficit is falling, shrinking by $61bn (£45bn) in April, the largest fall on record.
There is nothing wrong with a gradual rebalancing towards domestic production. Meanwhile, if the 10pc average tariff sticks, as it looks like it will, then it will raise significant amounts of extra revenue, which will help to at least stabilise the deficit.
It is not a bad record for the first six months in power, and far from the catastrophe many on the liberal-left were gleefully predicting.
The contrast with Europe remains painful. In the UK, Rachel Reeves, the Chancellor, was reduced to tears in the House of Commons this week, a metaphor for the miserable outlook for the British economy.
France has started the long summer break but it has a caretaker government, no agreement on how to balance the books, its deficit is running out of control, and its economy is only expected to grow by a miserable 0.6pc this year.
Germany's economy has shrunk for the last two years and even with a massive stimulus programme from the government is forecast to remain completely flat this year as well. With every year that passes, Europe falls further behind the US and there is little sign that anyone knows how to turn that around.
China and India are still growing at a decent rate but China has mounting debts and an aging population. In reality, American exceptionalism remains as strong as ever.
In the background, all the strengths that powered the US through the last decade are as strong as ever. America is self-sufficient in energy and investment in solar, wind and nuclear power will strengthen that. Its tech industry leads the world, and is just as strong in artificial intelligence (AI) as it was in the internet. China is its only credible challenger.
The US has the entrepreneurial vigour that few other countries can match. Throw in a few tax cuts and some deregulation and it should soon be back to 3pc-plus annual growth rates.
Trump got off to a shaky start. The tariffs were implemented with little thought or planning, and led to a collapse of confidence in the administration. Expecting Musk to revolutionise the way the government works in the same way he turned the car industry upside down was always, to put it mildly, optimistic.
But over the last few weeks the ship has steadied. Trump I left the American economy a lot stronger than he found it. It is starting to look certain that Trump II will as well.