- Economy expanded 1.8-2%, inflation 2.7%, interest rate 3.75%, while unemployment 4.4%
ISTANBUL
Donald Trump returned to the White House a year ago and during the past 12 months his presidency focused on tariffs, deregulation and technological competition, resulting in slower growth, a cooling labor market and heightened uncertainty in global trade and financial markets.
Besides seismic shifts in his foreign and domestic policies, Trump also continued to take unprecedented steps in the economic sphere. He described "tariffs" as the "most beautiful word" in the dictionary to him, and imposed levies on countries, including key trading partners, reversing US support for free trade.
He also engaged in a dispute with Fed Chairman Jerome Powell over interest rate decisions, and made headlines with his unusual negotiations with companies on everything from local chip production to lowering drug prices.
The Trump 2.0 era also saw the longest government shutdown in the US history, lasting 43 days.
Expansion slows after strong start
Economic growth moderated in Trump’s first year in office. After expanding 2.8% in 2024,real GDP growth slowed to an estimated 1.8%-2% in 2025, according to the OECD and Federal Reserve projections.
The economy contracted 0.6% in the first quarter of 2025, marking the first quarterly decline since 2022, largely due to a surge in imports as firms rushed to secure supplies ahead of new tariff measures.
But growth resumed later in the year, supported by consumer spending and AI-related investment, rising 3.8% in the second quarter and 4.3% in the third quarter.
Economists say the slowdown reflects a combination of tighter financial conditions earlier in the year, trade uncertainty and fading post-pandemic momentum. While the administration has argued that tariffs and deregulation will deliver longer-term gains, most forecasters expect growth to remain below recent highs unless investment increases further amid fears of an "AI bubble."
Labor market: Hiring loses momentum
The US labor market cooled significantly during Trump’s first year. Employers added 584,000 jobs in 2025, the slowest annual growth since 2003 and far lower than the 2 million generated in 2024.
Monthly job gains decelerated sharply in the second half of the year, particularly in interest-rate-sensitive sectors such as retail, construction, and manufacturing – sectors that rely on migrants.
The unemployment rate also edged higher, rising from around 4% in early 2025 to 4.4% by year-end.
Wage growth remained relatively firm, with nominal wages increasing by about 3.5%-4.0% year-on-year, but real wage gains were constrained by continued price pressures in housing, food and services.
Inflation, monetary policy: Cooling, but uneven
Inflation eased over the year but remained uneven across categories. Headline consumer price inflation stood at 2.7% year-on-year by late 2025, down from 3% at the start of the year, and close to the Federal Reserve’s target. However, core inflation stayed above 3% for much of the year, driven largely by services and housing costs.
With growth slowing, inflation modest, and a weakening labor market, the Fed shifted toward monetary easing, cutting interest rates three times in a row – September, October and December – but slower than what Trump wanted. By year-end, the benchmark policy rate stood in the 3.5%–3.75% range from between 4.25% to 4.5%.
Trump had repeatedly attacked Powell, calling him "incompetent" and a "major loser" and arguing lower rates were needed to support growth. The Fed, however, emphasized data dependence and institutional independence.
He also ordered removal of Fed Governor Lisa Cook on allegations of mortgage fraud, but the Supreme Court found it unlawful. An emergency appeal by the Trump was also dismissed but oral arguments are scheduled for January.
Trade policy: Tariffs reshape flows
Trade policy was a central pillar of Trump’s first year back in office. The administration imposed "reciprocal" tariffs on countries as well as selected imports such as steel and cars, citing national security and industrial competitiveness. These measures prompted firms to front-load imports early in the year, contributing to the first-quarter GDP contraction.
The adminstration then signed trade deals with several partners, including the UK, EU, Vietnam, Japan, South Korea, Indonesia, Malaysia, and Cambodia.
Later in the year, the US trade deficit narrowed, supported by weaker imports and modest export growth. In October, the deficit fell 39% month-on-month to $29.4 billion, the lowest figure since June 2009.
The White House has highlighted the narrowing deficit as evidence that tariffs are working, while economists caution the improvement reflects softer domestic demand and higher costs rather than a structural shift in competitiveness.
Globally, trade tensions contributed to continued fragmentation of supply chains, with companies increasingly redirecting production and sourcing to reduce exposure to tariffs and geopolitical risk.
The Supreme Court is weighing if the trade tariffs are illegal. If it says yes, the Trump administration may have to refund the revenues it has collected. In 2025, the US collected a total of $264.05 billion in tariff revenues, according to US Treasury data.
Technology, industrial policy: Investment rises
Technology emerged as one of the stronger areas of the economy during Trump’s first year. Investment in data centers, AI and semiconductor manufacturing increased sharply, with estimates suggesting that technology-related investment contributed around 0.5 percentage points to US GDP growth in 2025.
Trump started his second term strongly in terms of tech investments.
Last year, TSMC (Taiwan Semiconductor Manufacturing), which dominates the chip market, announced an investment package of $100 billion with building five new factories and research and development center in the US.
Micron Technology also notified an investment plan worth $200 billion for semiconductor production.
Meanwhile, the federal government took a 10% stake in chip maker Intel to grow the economy and help secure America's technological edge.
Similarly, tech giant Nvidia announced a huge investment package of $500 billion, while Apple committed $600 billion over the next four years to bring advanced manufacturing back home.
Last week, the US and Taiwan also reached an agreement on semiconductors; Taiwanese semiconductor and technology enterprises will make direct investments of at least $250 billion to build and expand advanced semiconductor, energy and AI production and innovation capacity in the US.
Taiwan will also provide credit guarantees of at least $250 billion to facilitate additional investment by Taiwanese enterprises.
At the same time, the administration tightened export controls and investment restrictions on advanced technologies, particularly involving China. Supporters argue the approach protects US technological leadership, while critics warn it raises costs, limits global collaboration and risks retaliation.
Financial markets: Volatility amid policy shifts
Financial markets reflected a mix of optimism and caution. Equity markets were supported by expectations of deregulation and pro-business policies, while bond markets remained sensitive to slowing growth, fiscal deficits and trade-related inflation risks. The dollar’s performance tracked shifting interest-rate expectations, contributing to volatility in global capital flows, particularly in emerging markets.
Investors have increasingly focused on policy predictability, with markets reacting sharply to tariff announcements and trade-related statements from the administration.
The three main stock indexes saw gains this year, hitting record high levels following the easing of the tariff uncertainty, after the tariffs wreaked havoc on the markets earlier in the year. Dow Jones Industrial rose around 15% last year, S&P 500 gained 18%, and Nasdaq composite increased 22%.