proposal

Outlook for the US Economy: Whether the "Golden Age" Is Beginning?

Akihiko Yasui

Introduction

The second Trump administration took office on January 20, 2025. In his inaugural address on the same day, President Trump declared that "the golden age of America begins right now."

The impact of the economic policies of the Trump administration, which advocates "America First," on the US economy will emerge at first as a negative one of tariff hikes and restrictive immigration policies, rather than a positive one of expansionary fiscal policies focusing on tax cuts. How far the combination of such policies will have a negative impact on the growth rate of US economy will depend on the coerciveness of tariff and immigration policies.

To evaluate the long-term growth potential of the US economy, it is crucial to examine the sustainability of the "America First" agenda. The widespread support for this policy reflects the aspirations of American citizens to improve their quality of life amid growing income inequality and diminished intergenerational mobility. . Unless inclusive growth becomes a reality, the inward-looking tendency of American society will likely continue.

That said, the implementation of "America First" agenda―supposedly a reaction to the inward-looking tendency of American society―is likely to lead to an increase in living costs in the United States, contrary to the people's wish to improve their standard of living. The new administration may aim to strike a balance between improving people's life and its tariff and immigration policies by, for example, moderating the extent of tariff hikes and easing the rigidity of its immigration measures.

The United States is approaching a time of generational change, and the future of "America First" agenda will depend on what the younger generation will choose. While the younger generation seems to distinguish themselves from Trump in, for instance, understanding diversity, they are prone to accept authoritarian politics because they seek strong leadership. The strength of the US economy is, in a sense, supported by the trust in America as a democratic and law-abiding nation. If it began to waver, it could hurt the future growth potential of the US economy.

The strength of the US economy, driven by entrepreneurship, a strong appetite for growth, access to risk capital, a growing population, and technological innovation, should not be underestimated. Further deregulation through strong leadership can serve as leverage to stimulate the forward-looking activities in the United States. In particular, AI (artificial intelligence) is now rapidly developing. The acceleration of AI development and utilization, driven by deregulation, is likely to have a significant impact not only on the growth potential of the US economy but also on US-China relations and inclusive growth in the years to come.

In this article, we first discuss the possible impact that the economic policies of the second Trump administration will have on the US economy and provide an outlook for "America First" agenda. We also offer suggestions for discussing the future US economy, focusing on the choices of the younger generation.

1. Impact of the Economic Policies of the Second Trump Administration on the US Economy

The economic policies of the second Trump administration will have both positive and negative effects on the US economy. What we should note in evaluating their implications for the growth of US economy is that policies capable of negative impacts tend to take precedence.

Policies that could have a positive impact on the economy are expansionary fiscal policies with tax cuts as a centerpiece. The scale of tax cuts mentioned in Trump's campaign pledge, such as the extension of the income tax cuts implemented under the first Trump administration in 2017, is estimated to reach $5 trillion to $11 trillion over 10 years.1

The extension of the Trump tax cuts itself is a measure to avoid an actual tax increase resulting from their scheduled expiration at the end of 2025. Strictly speaking, this procedure alone could not be an economic stimulus measure; however, Trump has also promised various other tax cuts, which, as a whole, will constitute expansionary fiscal operations, eclipsing the prolongation of the current tax system.

The policies that could hurt the US economy are tariff hikes and restrictive immigration policies. Both policies could elevate the inflation rate and put downward pressure on the economy.

Tariff hikes will inflate the prices of goods and reduce the purchasing power of consumers. To avoid increases in costs caused by tariff hikes, companies may have the option of increasing production in the United States. However, there are some products for which domestic demand cannot be satisfied even by raising the operation ratio of the facilities. Even if companies try to build new facilities in the United States, it will take time to put them into operation. Moreover, if a country whose exports to the United States are subject to tariff hikes imposes similarly high tariffs on US exports to that country, this will create a headwind for US exports.

Restrictive immigration policies will tighten the labor supply and demand balance more than is currently assumed, raising production costs in the United States. Since immigrants are both labor and consumers, if the immigrant population shrinks more than expected, it will put downward pressure on the US economy.

The reason why a policy capable of negative implications tends to precede other policies is the way the policy is determined. Fiscal policies that positively impact the economy must be enacted through legislation by Congress. Compared to tariff hikes and immigration policy reviews, which can be implemented to a certain extent by the President's authority, the timing of the implementation of positive-impact policies will be delayed.

Assuming that it will take some time for fiscal policies to boost the economy, the impact of the Trump administration's policies on the US economy will depend on the extent to which tariff hikes and restrictive immigration policies are implemented. Tariff hikes may be controllable to avoid leading to a tangible economic recession. Yet, there is a high possibility that tariff hikes will increase the inflation rate and cause an economic slowdown to a level below the potential growth rate. If high tariffs and mass deportations of undocumented immigrants go into practice as promptly as pledged, the real GDP growth rate for 2025 may drop to the low 0% range.

When assessing the impact of the Trump administration's economic policies on the US economy, we should note some factors that are hard to quantify or predict. Potential positive effects include invigorating business activity due to deregulation (the exercise of so-called animal spirits) and resultant increases in productivity. As for possible adverse effects, increased uncertainty regarding the scale of tariff hikes could shrink corporate activities, such as capital investment.

2. The Future of "America First"

When looking at the future of the US economy from a long-term perspective, we must consider the future of "America First."

The trend of "America First" itself will likely continue beyond the second Trump administration. "America First" goes in tandem with public opinion that calls for improvements in people's lives. Unless this public opinion changes, it is unlikely that the United States will change from "America First."

One of the reasons why Americans are seeking improvements in their lives and are becoming more inward-looking is the widened inequality and diminished intergenerational mobility in American society. Unless inclusive growth becomes a reality, voters' mindset desiring to have their lives prioritized is unlikely to change. This is why "America First" is expected to survive into the future.

The origin of "America First" goes back to before the advent of the first Trump administration. In American society since the 2000s, disparities have continued to widen almost consistently, and unlike up until the 1990s, American citizens' satisfaction with the direction of their society does not grow even in the economic expansion. As if responding to this, since the era of the Obama administration, which took office after the 2008 presidential election, opinion polls have attested to the increase of respondents calling for prioritizing domestic policy over foreign policy. As far as the 2024 presidential election is concerned, one of the primary public discontents was inflation. Yet, the reality is that American public opinion had been inward-looking before the price hikes.

Hereafter, focus will shift to a concrete detail of "America First." The implementation of "America First" agenda, proposed by Trump, will increase the cost of living in the United States. This development does not necessarily coincide with public opinion, which anticipates the improvements of living standards. A concrete detail of "America First," compatible with citizens' better lives, will be sought.

Looking at this in terms of tariff hikes, as mentioned earlier, tariff hikes will lead to price inflation in the United States. If a country imposed with high tariffs by the United States responds with retaliatory tariffs, downward pressure on the US economy will increase through further trade contraction—a development at odds with improvements in living standards that public opinion looks to.

When deciding whether or not to raise tariffs, the US government may consider factors other than the people's living standards. For instance, raising tariffs on China could be an option for national security reasons. It is not surprising either that the US government may choose to prioritize expanding production within the country, admitting some increases in the cost of living.

The second Trump administration's Treasury Secretary Bessent summarized the reasons for using tariffs into the following three points, noting that tariffs are a tool that could be used to 1) remedy unfair trade practices, 2) raise revenues, and 3) provide leverage in negotiations on various issues other than unfair trade practices.2

Taking these various elements into comprehensive consideration, the Trump administration will seek ways of using tariffs compatible with improvements in living standards that public opinion anticipates.

A crucial choice for the U.S. economy is immigration policy. The United States is a country whose population will continue to grow, which is exceptional among developed countries and sustains its economic growth. Immigrants sustain this population growth; therefore, if immigrants decrease in excess, it will undermine the power underpinning the US economy. As already noted, excessive immigration restrictions will lead to results incompatible with the public's expectations for a better life, given that such restrictive measures will tighten labor supply and demand conditions, thereby elevating production costs in the United States and causing price hikes.

The population projections released by the Congressional Budget Office (CBO) in January 2024 illustrate the US population continuing to grow until 2054 or the end of the projection term.3 However, the natural increase in the population, excluding immigrants, is on a downward trend in the United States. According to the CBO projections, the US population, excluding immigrants, will begin to decline from 2040.

American people's views toward receiving immigrants are rapidly deteriorating. A Gallup poll stated that the number of people favoring less immigration had decreased since the 2000s while that favoring more immigration had increased. However, this trend reversed around almost the same time as the start of Biden administration in 2021. In 2022, the number of people favoring less immigration exceeded that favoring more immigration, and according to a 2024 Gallup survey, the gap between the two groups widened to be equal to that immediately following the September 11 attacks in 2001.

The background to this is a rapidly increasing immigrant influx. According to the above CBO projections, the number of immigrants, which was about 400,000 in 2019, exceeded 1 million in 2021 and sharply increased to the 3 million range in 2023. The arguable reason for the accelerated influx of immigrants is not only that the first Trump administration, strict on immigration, was replaced by the immigration-tolerant Biden administration, but also that the political situation in immigrant-sending countries such as Haiti and Venezuela has worsened.

To check the deterioration of public sentiment toward immigrants, the US government must restore the order regarding the acceptance of immigrants. Most of the rapidly increasing number of immigrants are undocumented. An estimate says that in 2023, undocumented immigrants account for about 70% of the influx of immigrants, leading to public dissatisfaction that the national borders are "not under control".

That said, if, as it claims, the Trump administration were to forcibly deport a large number of undocumented immigrants, damage to the US economy would be unavoidable. Furthermore, even if mass deportations fail to materialize for practical reason, such as a shortage of personnel available to this end, the Trump administration's overbearing, hardline stance could cause a sharp drop in the influx of immigrants.

What immigrants to receive, and how many? How to institute the necessary systems to this end? The time will come for the Trump administration to consider ways to receive immigrants orderly.

3. The Choices of the Younger Generation

In considering the future of "America First," we should note that American society is approaching a time of generational change. The future direction of US economic policy will be up to the choices of the younger generations.

Since the Clinton administration came into power in 1992, the United States has had its presidents from generations older than the baby boomer generation (born between 1946 and 1964). Trump is also a baby boomer, but a younger generation has a chance to become a president in the next presidential election. Even in the second Trump administration, vice president Vance is a politician belonging to the millennial generation (born between 1981 and 1996). Meanwhile, generational change in the US Congress is proceeding faster than in the change of presidents; in Congress from 2025, the proportion of lawmakers younger than the baby boomer generation will rise to over 30% in the Senate and slightly under 60% in the House of Representatives.4

Generational change is advancing even faster among voters. According to an analysis by the Pew Research Center, the population of millennials surpassed that of baby boomers as of 2019, constituting the most populous generation.5 In the 2020 presidential election, baby boomer voters accounted for fewer than 30% of eligible voters, while the younger generation accounted for over 60%.6

Among the younger generation that will eventually take over political leadership, there are grounds for them to choose "America First" attitude. According to the opinion polls, the younger generation is more likely to prioritize domestic policy over foreign affairs and is relatively dissatisfied with their living conditions, which appears to explain their strong inward-looking inclination.

However, the inclination of the younger generation is not necessarily in sync with Trumpism. There is a disparity between the younger generation and Trump on specific points, such as understanding diversity and concerns with climate change. The younger generation will take over the quest for a concrete detail of "America First."

In this context, we should also note that the political inclination of the younger generation may change. Traditionally, a higher percentage of the younger generation in the United States are the supporters of the Democratic Party rather than the Republican Party to which Trump belongs. However, the ratio of under-30 voters favoring the Democratic Party in the presidential election peaked in 2008, scoring just under 70%; it has fallen to a little over 50% in the 2024 presidential election.

In connection with the strength of the US economy, crucial observation is that there are grounds for the younger generation to accept authoritative leaders. In a public opinion poll examining whether people view democracy or dictatorship as the better system, a generational trend emerges: the younger the respondents, the less likely they are to affirm that 'democracy is the best political system in all circumstances.' While a majority of younger individuals still express a preference for democracy, a notable pattern suggests that heightened expectations for change may fuel dissatisfaction with current political systems and foster a growing appeal for strong, decisive leadership.7

The strength of the U.S. economy stems from the trust people place in the United States as a democratic nation that upholds the rule of law. This trust enables companies to conduct business and make investments in the United States with confidence and a sense of security. Arguably, confidence in the dollar as the primary currency may also be underpinned by the same trust that the United States is a democratic and law-abiding nation.

Increasing tolerance of authoritative leaders among the younger generation could risk shaking the trust that underpins the US economy. The second Trump administration has been consistently taking steps to expand the presidential authority beyond established boundaries, including refusing to implement some parts of budgets approved by Congress. The United States has a longest history of maintaining democracy in the world.8 The resiliency of American democracy is now in question.

What must not to be forgotten is that the younger generation is seeking change, sometimes to the extent of being drawn to authoritative leaders. If the root cause lies in the increasing inequality and diminished intergenerational mobility, the key to safeguarding democracy and the rule of law also hinges on the success or failure of inclusive growth.

In this context, the development and use of AI will be of absorbing importance. Will the dramatic changes in AI technology contribute to further widening disparities, or will they open the way for inclusive growth? This question is crucial because it concerns whether the US economy will enter a golden age as Trump predicts.

(Director, Mizuho Research & Technologies, Ltd.)

(Translation by Tsutomu Inuzuka)

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