When the president does, and doesn't, own the economy
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Photo illustration: Aïda Amer/Axios. Photos: Joshua Roberts and Paul J. Richards/AFP via Getty Images
It's usually a mistake to attribute economic conditions in the weeks after a presidential inauguration to the person in the Oval Office.
- Right now is not one of those times.
The big picture: The U.S. economy is a mighty tanker ship, slow to turn. So much so that presidents usually don't affect its short-term course. The exception is when they take sweeping, rapid action on a massive scale.
- Both the last two presidents have done that, resulting in economic data that can be directly mapped to policy choices.
- President Trump's aggressive tariff agenda led companies to front-run import orders over the first three months of the year, the major cause of a contraction in Q1 GDP.
- Former President Biden implemented a $1.9 trillion pandemic relief bill in early 2021, far larger than most estimates of the size of the hole the economy was in. That contributed to the high inflation that followed, though economists disagree over how much.
Driving the news: On Wednesday, Trump said of Q1's GDP contraction that "that's Biden — that's not Trump."
- He later added, "You could even say the next quarter is sort of Biden."
Between the lines: In most presidencies, that would be a pretty reasonable way to think of it. Most presidential actions that affect the economy — taxes and spending, regulatory stance, appointments to the Federal Reserve and other agencies — do so with long and uncertain lags.
- For example, former President George W. Bush took office in January 2001 and a recession began in March 2001. But by any reasonable accounting, that recession was caused by the popping of the stock market bubble that developed under former President Clinton.
- When former President Obama took office in January 2009, he inherited an economy that had already been in recession for a year. The recession did not end until that summer.
- In other words, it's misguided to tell a story in which the 2001 recession was due to Bush's policies, or that the economic contraction in the first half of 2009 was Obama's doing.
Reality check: By contrast, there is a crystal clear line between Trump's policies and this week's economic data.
- A rise in imports by companies looking to get ahead of the new tariffs caused a surge in Q1 imports, which subtracted 5 percentage points from reported GDP growth. (That will likely reverse itself in Q2, as importers pull back due to the tariffs and the excess inventories they accumulated in Q1.)
- The trade war's more aggressive phase began right after Q1 ended, with the April 2 "Liberation Day" tariff announcement. That set off stock market gyrations and a plunge in business and consumer confidence that will shape economic results for the second quarter.
The bottom line: It's absolutely true that popular discourse attributes too much about economic outcomes, especially in the short term, to the person in the Oval Office.
- But when presidents make big, splashy moves in economic policy, and the data moves as you might expect based on those moves, the cause and effect is hard to ignore.
