Trump's Second Term: A Year of Economic Shifts

The first year of Donald Trump's second presidential term has concluded, bringing a wave of new economic policies focused on trade, immigration, and federal workforce restructuring. This period has been defined by significant shifts, from a notable slowdown in the job market to a surge in tariff rates, creating a complex and often uncertain environment for consumers and businesses alike.

As the administration moves into its second year, the economic landscape reflects a mix of resilience and caution. While overall economic growth has persisted, the labor market has shown signs of strain, and the full effects of implemented policies are still unfolding. The following analysis explores the key economic indicators that shaped the past year.

The U.S. job market experienced a significant slowdown in 2025, adding only 584,000 jobs—the smallest growth outside of a recession since 2003. This cooling trend has been attributed to a combination of factors, including overall policy uncertainty, the implementation of tariffs, shifts in immigration, and lingering fears of a recession.

According to Jason Draho, head of asset allocation Americas for UBS Global Wealth Management, this uncertainty has made companies more hesitant to invest and hire. "It's made companies a little more reluctant to invest, to hire, if you're not sure how much of an overall economic drag that tariffs would have," he noted. "So even if your company may not be directly affected by tariffs, just the uncertainty of how this could play out would be a bit of a negative."

Economists suggest this slower job market may be unsustainable. Elizabeth Renter, a senior economist at NerdWallet, warned that prolonged uncertainty could eventually impact consumer behavior. "How we feel about our income plays a big role in how we spend, and I think the longer this uncertainty and the longer this labor market chill sort of sits over us, the more that a greater number of households are going to start tightening their purse strings," she said.

Despite the labor market challenges, the U.S. economy demonstrated notable resilience. Gregory Daco, chief economist at EY, described the situation as a "jobless expansion," where economic growth continues even as hiring slows. Real GDP grew in both the second and third quarters of 2025, recovering from a decline in the first quarter as businesses prepared for new tariffs.

Daco attributes this resilience to the economy's ability to navigate multiple "cross-currents," including significant shifts in trade policy, industrial policy, and immigration dynamics, alongside an AI-led technological revolution. However, he anticipates the jobless boom will continue due to an aging population and reduced net migration, which are shrinking the supply of available workers.

Businesses are very cautious as to who they hire and at what rate they hire because they don't necessarily need as much talent as they did a year or two years ago.

This cautious approach from employers, combined with a smaller labor pool, suggests that the disconnect between GDP growth and job creation may persist in the coming year.

Trade policy has been a central pillar of the administration's economic agenda, with the effective tariff rate surging to its highest level in decades. A blog post from the St. Louis Fed indicated that both the tariff rate and tariff revenue as a share of GDP jumped noticeably, exceeding the increases seen during the 2018 trade war. The administration has announced various tariffs on goods like wines, cars, and furniture, though some have been paused or reversed.

The impact on the manufacturing sector has been mixed. While the administration's goal was to bring manufacturing back to the U.S., employment in the sector fell by 0.5% from a year ago in December. Renter explained that reshoring manufacturing is costly and could take years, "if even possible," and that tariffs have likely hurt firms reliant on imports.

However, the White House points to positive indicators in industrial production. A spokesperson stated that the Federal Reserve's industrial production measure is at its highest level since 2019, reversing its decline from the previous administration, and that core capital goods shipments have hit an all-time high, signaling strong future investment.

Inflation has remained a key focus, cooling significantly from its 2022 peak of around 9% but still hovering above the Federal Reserve's 2% target. The rate slowed in early 2025 before accelerating and then holding steady by December. Experts believe tariffs have played a role, though their effect has been gradual rather than causing a sharp, one-time price jump.

Elizabeth Renter noted the difficulty in isolating the impact of tariffs from other factors like supply chain and demand issues, which complicates monetary policy decisions. "It's tough, really, to know how much of the spikes in price growth can be attributed to tariffs," she said.

Meanwhile, consumer spending has remained surprisingly strong, defying some expectations of a pullback. However, this spending has taken on a "K-shape" pattern, where wealthier households with assets and high incomes continue to spend robustly, while lower-income Americans are cutting back. This structural trend, which predated the current administration, means the overall spending figures mask underlying economic pressures for many families.

As the first year of the second term concludes, the administration has signaled that the pace of major policy changes may slow. Jason Draho of UBS noted that the policies with the largest economic effects—such as tariff changes and the "One Big Beautiful Bill's" tax cuts—have already been implemented or announced. Future measures, like a proposed credit card interest rate cap, are seen as tweaks around the edges of the macro economy.

The White House maintains that President Trump has successfully delivered on key promises, citing accelerating GDP growth, private sector job creation, new trade agreements, and cooled inflation compared to the previous administration. However, with much work remaining, the economic story of the second term is still being written. The coming year will test whether the current trends of a cooling labor market, resilient growth, and evolving trade dynamics will solidify or shift once again.