If you’re under the impression that President Trump inherited “a strong economy,” as an NPR headline claimed recently, guess again. He’s got his work cut out for him.
Take the monthly inflation rate. It reaccelerated to a 17-month high in the last month of the Biden administration. Combine that with a $36 trillion national debt, a labor market that is much weaker than previously estimated, and deteriorating federal finances, and it’s clear Trump has a real mess through which to navigate.
If Trump wants to deliver on his vow of a new “Golden Age,” he’ll need to rely on the sober wisdom and expertise of his team while avoiding the pitfalls into which many of his predecessors fell.
First, it will take a whole-of-government approach to fix the current cost-of-living crisis—because the entire federal government was involved in creating the disaster in the first place. America needs to increase energy production, cut taxes and regulatory red tape, renegotiate international trade, and drastically cut spending out of Washington, D.C.
Fortunately, there is much overlap in those goals. Reducing taxes and burdensome regulations will create a more business-friendly environment for American energy producers. That will reduce costs and increase production. Reopening federal lands to exploration and drilling will bring further supply online.
America is also perfectly positioned to export vast quantities of energy worldwide. The U.S. has a four-to-one cost advantage over Europe when it comes to natural gas and natural-gas-derived chemicals; that’s a golden opportunity to increase exports, close the trade deficit, and boost both economic growth as well as national income.
Growing energy exports is just part of how Trump will have to juggle today’s highly imbalanced international trade situation. Tariffs will certainly be in the mix, but there’s a right way and a wrong way to implement them.
President Hoover is one of the best examples of how not to apply tariffs. The bipartisan Smoot-Hawley tariff bill he signed was a shotgun-style, non-strategic approach to international trade that worsened the Great Depression.
Conversely, President McKinley — who Trump frequently praises — took a strategic approach to tariffs which included a focus on reciprocity. That level-headed, logical policy helped usher in America’s Golden Age, with booming production, income, and innovation.
Trump has discerned that he can wield the American consumer’s purchasing power as a weapon on the world stage to get a better deal for our workers. Knowing when to draw and when to sheath that sword is the difference between a McKinley and a Hoover.
Trump will also need to avoid the mistakes of presidents like Clinton and Bush, who trade signed agreements which negligently hollowed out American industry. And he should crack down on abuses of his own signature trade treaty, the US-Mexico-Canada-Agreement (USMCA).
Mexico and Canada have been allowing other countries like China to abuse the USMCA by routing subsidized products through their countries before dumping them in America. That makes it impossible for American workers to compete with their foreign counterparts.
Fixing international trade will require a carrot-and-stick approach, with tariffs being the stick penalizing companies for shipping production and jobs overseas. Simultaneously, Trump will offer a carrot in the form of lower taxes and less regulatory red tape, making America the best place in the world to produce, to employ people, and to invest.
The nation is $36 trillion in debt — growing by over $2 trillion per year. It takes over $1.2 trillion just to pay the interest. If the debt and the spending that fuels it are not arrested, the ensuing inflation will make Biden’s four years look like a walk in Central Park.
But creating a more investment-friendly country will also require reducing taxes, which in turn means drastically reducing federal spending. As Elon Musk recently said during a visit to the Oval Office, this is not optional. It’s mandatory if America is to avoid a catastrophic collapse of federal finances.
Fortunately, Trump has invaluable assets in Musk at the Department of Government Efficiency, Secretary Scott Bessent at Treasury, and JD Vance as Vice President. It will be a herculean effort to shepherd cost-cutting legislation through Congress and get it to Trump to sign, but these are exactly the men for the job.
Trump has his all-star team — he just needs to use it.
E.J. Antoni is a public finance economist, the Richard F. Aster fellow at the Heritage Foundation, and a senior fellow at Unleash Prosperity.