Breaking the Tape | Is the US Economy “Destroyed”?

It’s no scoop: Donald Trump lies. Often and brazenly.

On the campaign trail, he has repeatedly said that the Biden administration and Democratic candidate Kamala Harris have “destroyed the American economy.”

It’s not as spectacular as his lies about immigrants “eating dogs” and the crime rate. But it’s probably one of his most effective lies. Americans are (rightly) concerned about the state of their economy. After hearing such rhetoric, part of the electorate gets the impression that the economy is in terrible shape.

In early 2020, before the pandemic and while Trump was in office, 81% of Republican voters thought the economy was healthy, compared to 39% of Democratic voters. In May 2024, 37% of Democrats still thought the economy was healthy, compared to… just 10% of Republicans.

This is problematic because the American economy is, objectively, healthy. Especially when compared to other G7 countries.

Americans do not live on an island. Like everyone else, they have been hit by the pandemic and then the inflation crisis that followed.

Despite this, the United States remains a very wealthy country. In 2023, it was the third richest country in the world, excluding tax havens, behind only Norway and Switzerland in GDP per capita.

Unemployment is lower in the United States (4.3% in July) than in Europe (6.4%) or in OECD countries (5.0%).

And most importantly, the U.S. economy has rebounded very well since the pandemic. It is the best-rebounding country among the G7 countries.

Between 2019 and 2023, the United States ranks first among the G7 countries in GDP growth per capita (adjusted for purchasing power parity), according to the World Bank. It grew by 6%, compared to an average of 1% for the other G7 countries. (That includes the last year of Trump and three years of Biden.)

During Joe Biden’s first three years (2020-2023), GDP per capita grew by 9% in the United States, compared to 8% for the G7 countries.

“The American economy suffered a crisis linked to the pandemic and inflation, like everywhere else,” says economist Martin Coiteux, associate professor at HEC Montréal and former minister in the Couillard government. “It is one of the countries that has recovered the fastest,” he says.

Like everywhere else, inflation has been causing problems for Americans. On a monthly basis, it rose to 9.1% in June 2022. To combat inflation, the U.S. Federal Reserve had to raise interest rates, which slowed the growth of the economy.

Normally, with a sharp rise in interest rates, the economy enters a recession. Not this time. “The dynamism of the American economy means that it was able to go through a period of significant interest rate increases without a recession,” says Martin Coiteux, who was chief economist at the Caisse de dépôt et placement du Québec.

Objectively, Americans have reason to be proud of the overall performance of their economy. But that doesn’t make for very good campaign slogans for a politician who wants to defeat the party that occupies the White House.

During the election debate against Kamala Harris, Donald Trump said that the United States was experiencing “probably the worst inflation in its history.”

As is often the case with what comes out of Donald Trump’s mouth, this is false.

In 2022, inflation was 6.2% (on an annual basis). It decelerated to 4.8% in 2023.

Between 1974 and 1982, during the oil crisis and recession of the early 1980s, annual inflation was above 6.2%… every year! It reached an annual peak of 12.4% in 1980, at the height of the recession.

That said, Americans are not wrong to worry about the cost of living. They are not deluding themselves: it has gone up.

It took until 2023 for the median wage of Americans ($80,610) to return almost to the 2019 level ($81,210), taking into account inflation. Given the (very) unequal redistribution of income in the United States – a major social and economic problem – Americans with lower incomes were particularly hard hit by inflation. The poverty rate increased from 12.4% to 12.9% in 2023.

“Donald Trump is playing on an objective fact here: many people have suffered from the increase in the cost of living,” Mr. Coiteux sums up.

As always, the economy will be a major issue in the presidential campaign. Democrats and Republicans have completely different proposals on the subject.

Kamala Harris is proposing, among other things, tax cuts for the middle class and the less well-off, as well as tax increases for the wealthiest taxpayers.

Donald Trump wants cuts for the wealthy. And above all, he wants to impose tariffs of 60% on Chinese products, and 10% to 20% on products from other countries. These tariffs would fuel inflation.

In a recent study, Goldman Sachs estimates that a victory for Kamala Harris and the Democrats in Congress would be better for the economy. A Democratic sweep would create 30,000 more jobs per month for two years than if the Republicans won the White House and Congress. That’s a lot because of the tariffs that Trump wants to impose.

The Republican candidate may call his rival a “Marxist,” but Kamala Harris has a better economic program than him.

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