ExplainSpeaking | Trump says US economy ‘is bigger, better, richer’. Is it really? | Explained News

What is the SOTU? Why does this one matter?

The SOTU is a constitutionally-mandated event where a US President is supposed to provide a snapshot of how the country is faring across different areas of concern. Typically this happens once every year.

This SOTU comes at a time when Trump’s approval ratings have taken a heavy beating, and the Republican Party (to which Trump belongs) has seen several electoral losses to Democrats since November last year. To make matters worse, the US Supreme Court, which has many justices appointed by Trump, has just recently ruled the bulk of his tariffs illegal — a decision that has embarrassed him and forced him to work with the US Congress on the issue of imposing tariffs.

Worsening public perception of Trump’s presidency could end up hurting the Republicans in the midterm elections in the US Congress in November.

If the Democrats can flip majorities in the House of Representatives and the Senate in November, it could not only spell the death-knell for Trump’s policy agenda for the rest of his term but also open him up for impeachment proceedings.

In other words, the SOTU was Trump’s big opportunity to tell the American public that his policies are working for them.

What is the state of the US economy?

Trump’s address on the economy can be broken into four broad categories:

1. Affordability & Welfare

A key reason why Americans voted Trump back to office in 2024 — after rejecting him at the end of his first term in 2020 — was the high cost of living during President Biden’s term, which saw inflation rise to historic levels. Inflation, the rate at which prices rise from one year to the next, rose to a peak of 9.1% in June 2022 in the wake of the Russia-Ukraine war and associated supply constraints, even as government stimulus (read monetary dole in the hands of people) increased demand.

By the time Trump won, the inflation rate had simmered down to less than 3%. However, the deceleration in the inflation rate reversed after Trump announced “reciprocal” tariffs in April last year, and since then, inflation has remained sticky. Higher prices were essentially because of higher tariffs, as more than 90% of all tariffs were paid by American consumers and companies.

Higher-than-anticipated inflation also caused the US Federal Reserve (their central bank) to maintain interest rates at elevated levels, thus hurting borrowers (be it for homes or cars).

The situation has improved a bit over the past few months, and the Fed cut interest rates, and inflation moderated a bit in January.

“Mortgage rates are the lowest in four years and falling fast, and the annual cost of a typical new mortgage is down almost $5,000 just since I took office,” said Trump.

Also aimed at improving affordability, Trump has provided the “largest tax cuts in American history” through his One Big Beautiful Act. These include provisions like no tax on tips, no tax on overtime and no tax on Social Security for senior citizens. Trump has also introduced what he calls the “Great Health Care Plan” that allows Americans to buy prescription drugs at “the lowest price anywhere in the world”.

Trump also reminded us about the so-called Trump Accounts, which are tax-free investment accounts for every American child that will receive an initial sum of $1,000. “With modest, additional contributions, these young people’s accounts could grow to over $100,000 or more by the time they turn 18,” promised Trump.

2. Economic Output and Growth

Trump has repeatedly claimed that under Biden, the US was a “dead” economy and is now the “hottest” one. Given the size of the US economy, its economic output growth has been surprising everyone for years, especially since the Covid pandemic, when it was the only major economy that managed to stage a genuine “V-shaped” recovery — that is, the very next year, US GDP went back to the pre-Covid path in absolute terms.

While the US has continued to expand at an enviable pace, given the fact that it is the world’s largest economy. However, contrary to Trump’s claims, the GDP growth rate moderated in 2025. While he did not say so, he did blame the Democrats for the government shutdown last October, and as a result, “two points we lost on G.D.P., which probably made them quite happy, actually.”

Trump also reiterated that he kept his promise to “drill, baby, drill” and that the US crude oil production had gone up by more than 600,000 barrels a day. He reminded that gasoline prices, which “reached a peak of over $6 a gallon in some states under my predecessor”, were now “below $2.30 a gallon in most states”.

3. Employment

Between the Trump administration’s crackdown on immigrants and, more broadly, on immigration, coupled with the effect of Artificial Intelligence in the workplace, employment in the US economy has remained in a “low hire and low fire” zone. In other words, both the hiring rate and layoffs rate are low. In other words, while the overall economic growth has been impressive, it has not led to a lot of job creation. This has not created a massive problem because during the recent high inflation and high growth phase, there were almost two job vacancies for every unemployed person.

Overall, as the data shows, employment has grown and, as Trump said, “we have more jobs, more people working today than ever before in the history of our country.”

However, most of these jobs have been created in service sectors such as private health and education (up by 773,000 during 2025), while manufacturing jobs (a key concern for Trump) have come down by 83,000 during the year.

4. Tariffs

After the snub by the Supreme Court, a rational course of action for Trump would have been to relinquish his tariff agenda. After all, it was hurting both the American consumers as well as Trump’s own political standing without even achieving its primary goal: the reduction in the US trade deficit.

However, Trump doubled down on the use of tariffs, claiming that they allowed him to secure trade deals for the US and also led to benchmark stock indices rising to historic highs during the year.

He also claimed that “as time goes by, I believe the tariffs, paid for by foreign countries, will, like in the past, substantially replace the modern-day system of income tax, taking a great financial burden off the people that I love.”

This may be a far cry. For one, tariffs are paid by Americans. Moreover, income tax contributed over $2.7 trillion in FY25 while tariffs brought in less than $200 billion.

Is Trump truly making America great again? Or will his term be seen as the start of the US decline? Regardless, are there any lessons for India to learn from Trump’s policy initiatives?

Share your views and queries at udit.misra@expressindia.com

Take care,

Udit