US economy grows faster than expected – The Trump phenomenon between economic dynamics and structural challenges
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Published on: September 26, 2025 / Updated on: September 26, 2025 – Author: Konrad Wolfenstein
US economy grows stronger than expected – The Trump phenomenon between economic dynamics and structural challenges – Image: Xpert.Digital
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The American economy under Donald Trump's second term presents itself as a complex phenomenon full of contradictions. While economists predicted a severe recession at the beginning of the year, the US economy is demonstrating remarkable resilience, which is simultaneously overshadowed by growing structural problems. The question of the sustainability of the so-called Trump phenomenon is becoming increasingly urgent.
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The psychological dimension of economic policy
Ludwig Erhard's famous dictum that economics is 50 percent psychology proves particularly apt when analyzing the current American economic situation. Trump's communications strategy acts as a powerful catalyst for economic expectations, creating a spirit of optimism among large segments of the population and business community that translates into real economic activity.
This psychological component manifests itself in several dimensions. Trump's constant promises of economic recovery and a return of American jobs create a positive attitude, which, paradoxically, is also reinforced by his disruptive policies. While the constant announcements of new tariffs and policy reversals create uncertainty, they also create a form of creative tension that forces companies and investors to react and adapt more quickly.
The discrepancy between sentiment and behavior is particularly striking. While the University of Michigan's consumer confidence index fell to 55.4 points in September 2025, actual consumer spending rose steadily in the second quarter. Americans talk pessimistically but continue to act optimistically—a classic example of how psychological factors are more complex than simple mood indicators suggest.
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Economic reality contrary to forecasts
Contrary to the gloomy predictions of many experts at the beginning of the year, the US economy is showing remarkable resilience. Gross domestic product grew at an annualized rate of 3.3 percent in the second quarter of 2025, after declining by 0.5 percent in the first quarter. The Federal Reserve even revised its GDP growth forecast for 2025 upward from 1.4 to 1.6 percent.
Growth was primarily driven by a dramatic 29.8 percent decline in imports, following a sharp rise in the first quarter as businesses and consumers stockpiled goods ahead of expected price increases following the tariff announcements. At the same time, consumer spending rose by 1.6 percent compared to 0.5 percent in the first quarter, underscoring the resilience of consumer demand.
Corporate profits also showed positive developments, rising from $3,203.60 billion to $3,266.20 billion in the second quarter of 2025. Particularly noteworthy is the development of corporate investment, which rose by an impressive 7.6 percent in early 2025—the strongest pace since mid-2023.
The critical turning point in the labor market
While other economic indicators still show strength, the labor market is revealing the first clear signs of weakness, which can be interpreted as harbingers of a major economic turnaround. The unemployment rate rose to 4.3 percent in August 2025, its highest level since October 2021. The employment figures are even more dramatic: Only 22,000 new jobs were created in August, far fewer than the expected 75,000.
The development in key sectors is particularly alarming. The manufacturing sector lost around 12,000 jobs, while the federal government cut 15,000 positions. Nearly 100,000 federal jobs have been eliminated since the beginning of the year, highlighting the impact of Trump's austerity policies in the public sector.
Analysts primarily blame the Trump administration's aggressive tariff policy for this weakening. High import tariffs increase material costs, disrupt supply chains, and create investment uncertainty, to which companies respond with hiring freezes, relocations, or job cuts.
The debt crisis as a structural threat
In parallel with short-term economic indicators, the American national debt is becoming an increasingly threatening structural challenge. In August 2025, the national debt reached a new high of $37.27 trillion, corresponding to a national debt-to-GDP ratio of approximately 124 percent.
The development of interest costs is particularly dramatic. The United States now has to spend over $1.1 trillion annually on interest payments alone, making interest expenses the largest expenditure item in the federal budget. This interest burden is growing exponentially as the country must continually take on new debt to refinance existing liabilities.
The budget bill recently passed by the House of Representatives significantly exacerbates the situation. According to estimates by the Committee for a Responsible Federal Budget, the planned tax cuts and spending programs would increase the debt by an additional $3.3 trillion over ten years. Harvard economist Kenneth Rogoff even predicts a severe debt crisis within the next five years.
Inflation as a growing threat
Inflation trends are increasingly worrying experts and could trigger an economic turnaround. The annual inflation rate accelerated to 2.9 percent in August 2025, the highest level since January. Particularly worrying is that core inflation remained at 3.1 percent, well above the Fed's target of 2 percent.
The Federal Reserve raised its own estimate of core inflation for 2026 from 2.4 to 2.6 percent, reflecting growing concerns. Prices rose particularly sharply for food (3.2 percent), used cars (6 percent), and new vehicles (0.7 percent). Energy costs also rose by 0.2 percent for the first time in seven months.
Consumer inflation expectations rose for the third consecutive month, signaling a significant risk to future price increases. This presents the Federal Reserve with a complex dilemma between supporting the weakening labor market and containing rising inflation risks.
Monetary policy in tension
Under Jerome Powell, the Federal Reserve is skillfully navigating the challenges of a weakening labor market and the inflation risks posed by tariff policy. On September 17, 2025, the Fed lowered its key interest rate by 25 basis points to a range of 4.00 to 4.25 percent—the first rate cut since December 2024.
The Fed's new key interest rate projections envisage two further rate cuts by the end of 2025 and one further easing step in 2026. This cautious easing signals to the markets continued monetary policy support without ignoring inflation risks.
Powell emphasized that the Fed prioritizes downside risks to the labor market over upside risks to inflation. This prioritization makes the state of the labor market the primary reason for the upcoming monetary easing, but puts the central bank under enormous political pressure from Trump, who is demanding significantly more aggressive interest rate cuts.
Trade policy and international impact
Trump's protectionist trade policy is now having a significant impact on global trade flows. China's trade surplus with the US fell to $20.32 billion in August, down from $23.74 billion in July. Both Chinese exports to the US and US imports from China fell dramatically, by 33.1 percent and 16.0 percent, respectively.
This development reflects the increasing fragmentation of the international trading system. Continuing trade conflicts and protectionist measures could lead to a fragmented global market, creating costs everywhere and harming not only the American economy but global growth as a whole.
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Resilience or calm before the storm? Tech as a savior? How long will Trump's psychological boost for the economy last?
Sectoral developments and structural strengths
Despite macroeconomic challenges, certain sectors of the American economy remain robust. The technology sector continues to be a key growth driver. The IT services market in the United States is expected to reach approximately $513.8 billion in 2025, with an expected annual growth rate of 3.73 percent through 2030.
Major technology companies such as Alphabet, Amazon, Microsoft, and Meta are expected to increase their capital spending from $90 billion in 2020 to over $270 billion in 2025. These massive investments in artificial intelligence and digital infrastructure will strengthen the long-term competitiveness of the American economy.
The structural strengths of the US economy—labor market flexibility, financial market depth, innovative strength, and the size of the domestic market—continue to prove important buffers against external shocks. These institutional advantages can partially offset short-term political uncertainties and contribute to economic resilience.
Trump's dwindling approval ratings
Political support for Trump's economic policies is increasingly eroding, threatening the sustainability of the psychological impact of his presidency. His approval ratings are now only between 40 and 41 percent, down from 50 percent when he took office. Of particular concern for Trump is his particularly poor ratings on the economy, his central issue.
According to a YouGov poll, 54 percent of US citizens believe the economy is doing worse, while only 31 percent give Trump high marks on the cost of living. This is particularly problematic given that Trump scored points on economic issues during his re-election in November.
By September 2025, Trump has negative approval ratings in all major policy areas. His rating for inflation and prices is particularly dramatic, at minus 30.45 percent. His approval ratings are also negative in foreign policy, migration, and the economy.
Medium-term risks and expert assessments
Economic experts' assessments of medium-term developments paint a nuanced picture, reflecting both cautious optimism and justified concerns. While growth forecasts for 2025 as a whole have stabilized, many analysts warn of increasing risks in the coming years.
Experts are particularly critical of the second half of Trump's term. Harvard economist Kenneth Rogoff predicts that the US economy will likely slow down and experience a downturn in the second half of the year. He sees the most likely scenario as a strong recovery followed by a slowdown and even a recession.
Migration policy poses significant economic risks. According to estimates by the Peterson Institute, Trump's planned mass deportations could shrink the US economy by more than 7 percent by 2028. The sudden loss of workers would not only affect individual companies but could destabilize entire industries and simultaneously exacerbate inflationary pressures.
The limits of predictability
The development of the US economy in the first months of the Trump presidency offers valuable insights into the complexity of economic forecasting and the resilience of modern economies. The discrepancy between the dire predictions of many economists and actual economic developments raises fundamental questions about the limits of economic forecasting.
Many experts focused too heavily on individual factors such as tariffs or migration policy without adequately considering the dynamic adjustment mechanisms of the American economy. The US economy proved to be more adaptable and dynamic than many models suggested. Furthermore, the strong US domestic market—characterized by a large consumer base, robust private consumption, developed financial markets, and flexible labor and production structures—was given too little weight in many analyses. This domestic market dynamic often acts as a buffer against external shocks and can significantly mitigate the negative effects of trade conflicts or political uncertainty. This underscores the importance of a differentiated view of economic interrelationships beyond blanket predictions.
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International perspectives and trade dynamics
The international dimension of Trump's economic policy is becoming increasingly problematic. The US is planning blanket import tariffs of 10 to 20 percent, and Trump has already threatened retaliatory tariffs of over 100 percent if the EU responds with its own trade barriers.
These escalating trade restrictions could trigger a devastating race to the bottom, ultimately damaging the United States as a business location. The fragmentation of the international trading system leads to higher costs for all parties involved and reduces the efficiency of global value chains.
The impact on strategically important trading partners is particularly problematic. German companies, which invested €15.7 billion in the US in 2023, face considerable uncertainty regarding their expansion plans and supply chains.
The future of the Trump phenomenon
The question of whether the Trump phenomenon will continue or reverse its trend cannot be answered clearly, as various factors are working in different directions. On the one hand, the structural strengths of the American economy—flexibility, innovative power, and depth of capital markets—continue to have a stabilizing effect. The psychological component of Trump's economic policy continues to function as a catalyst for entrepreneurial activity and consumer behavior.
On the other hand, warning signs are piling up at an alarming rate. The labor market, a leading indicator, is showing clear signs of weakness, inflation is rising again, and national debt is reaching critical levels. Trump's dwindling approval ratings indicate that psychological support for his policies is beginning to crumble.
The crucial question is whether the psychological effects are strong enough to overcome the growing structural problems. Experience shows that economic psychology can quickly change if real outcomes deviate too much from expectations. As soon as unemployment rises noticeably or inflation puts a noticeable strain on household budgets, psychological support for Trump's policies could quickly dwindle.
US resilience vs. real economy: When will economic psychology tip?
The Trump phenomenon is likely at a critical turning point. The remarkable resilience of the American economy in the first months of his second term may prove to be the calm before the storm. The combination of growing structural problems, dwindling political support, and increasing macroeconomic imbalances suggests that a countertrend may already be underway.
The next few months will be crucial. If the labor market weakness persists, inflation continues to rise, and the debt crisis becomes more acute, the psychological foundation of Trump's economic policy could quickly erode. The American economy has proven that it has considerable self-healing powers, but these are not inexhaustible.
The international community and financial markets are watching this development with growing attention. A failure of Trumponomics would impact not only the United States, but the entire global economy. The challenge for the future is to preserve the strengths of the American economy while simultaneously addressing the structural problems that pose a long-term threat to economic stability.
The Trump phenomenon may not have completely disappeared yet, but there are increasing signs that his time is running out. The economy is too complex to be permanently controlled by psychology and political rhetoric alone. Sooner or later, economic fundamentals will prevail, and these are increasingly pointing in a worrying direction.
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