OPINION:
The economy remains solid.
From 2016 to 2024, annual gross domestic product growth averaged 2.5%.
After a rocky first quarter, the balance of 2025 matched that performance. Despite the war, 2% growth is still likely this year.
Adjusted for inflation, we have survived significantly higher gasoline prices, and President Trump’s impact on the economy still hinges on his tariffs, tax cuts and immigration policies.
During the Biden years, many of the jobs created went to immigrants, both legal and illegal, who likely lowered the federal deficit by paying more taxes than they received in federal benefits. That boosted growth by doing jobs Americans cannot or will not take.
The downsides were increased homelessness and strains on state and local finances.
Mr. Trump has effectively sealed the southern border, but beyond deporting dangerous criminals, he would do well to compromise with Democrats who might be willing to cooperate on immigration reform to fill workforce gaps.
In recent years, economic growth has been supercharged by a dangerous borrowing trajectory. Mr. Trump’s first-term tax cuts and President Biden’s social, infrastructure and industrial policies more than doubled the federal deficit to 5.8% of GDP, which enables Americans to consume more than they produce through a 3.5% to 4% of GDP trade deficit.
That process moves workers from factories to services employment, as China subsidizes manufactured exports to prop up an economy in a real estate meltdown.
American competitive advantages are increasingly limited to energy, media, finance and high-tech services.
We once made the best commercial aircraft and among the finest automobiles. However, by protecting those industries, we created vastly uncompetitive domestic supply chains. Boeing has had terrible safety and quality problems. General Motors and Ford can’t make sedans or electric vehicles profitably, but Hyundai can.
In high-tech manufacturing, Intel has fallen from grace as the world’s premier fabricator of high-end chips and has become an also-ran in design.
Nvidia and others lead in chip design and software but outsource leading-edge fabrication to Taiwan and South Korea.
The world clamors for our media products, but too many movies and TV shows are produced abroad.
We have a world-dominant financial sector, but employment among bankers is being displaced by artificial intelligence.
U.S. unemployment has risen as white-collar workers who lose jobs find it horribly difficult to secure comparable positions. Recent college graduates face a tough time landing their first jobs.
The share of the unemployed out of work for more than 26 weeks is about 25%, and even graduates from premier schools face challenges finding attractive positions.
Tariffs create some demand for domestic manufacturing, but businesses complain about labor shortages and a dearth of skills among the workers they can find.
Compared with peers abroad, our workers’ general aptitude has fallen behind. Education at all levels is not delivering.
Much of the elevated federal borrowing during the pandemic shutdowns financed a boost to household incomes that were saved, and when the economy reopened, increased domestic consumption through 2024.
With that aid to aggregate demand now expired, consumer spending growth is even more dominated by upper-income households.
On the supply side, legal immigrants fill many high-tech jobs, and legal and illegal immigrants take many jobs without ready American replacements.
Mr. Trump’s tax cut and spending ambitions cannot be fully realized through import tariffs.
The future of Mr. Trump’s tariffs is uncertain, and those will not cover the whole cost of extending his 2018 tax cuts, new tax breaks and spending in the One Big Beautiful Bill Act.
It all hinges on investors’ willingness to purchase ever-larger amounts of new Treasurys, and they could start balking.
Since September 2024, the Federal Reserve has lowered the federal funds rate by 1.75%, but the 10-year Treasury rate has risen about 0.9%.
From June 2022 to December 2025, the Fed ran down its holdings of mortgage-backed and Treasury securities. That raised long Treasury rates by 0.2% to 0.4%, but that pressure was already built in before those rate cuts.
With a national debt exceeding 100% of GDP and the U.S. bullying allies and developing nations with threats of tariffs to repatriate citizens who often send home vital remittances, foreign governments, central banks and financial markets may no longer view the U.S. economy as well-run and stable or the dollar as a solid store of value.
Then the confidence game would be up.
The Treasury could face a bond market rebellion akin to the one that besieged Britain last year. The dollar could lose its status as a reserve currency, and Americans could lose their ability to live beyond their means.
Mr. Trump’s deportations, tax cuts and tariffs fix little of that.
• Peter Morici is an economist and emeritus business professor at the University of Maryland, and a national columnist.
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