Donald Trump’s Needless War with Iran Is His Biggest Economic Blunder
As far as President Donald Trump is concerned, the summer fun is already over. He outraged traditionalists by staging a U.F.C. fight night at the White House for his eightieth birthday, celebrated the two-hundred-and-fiftieth anniversary of the country’s founding by branding the Democrats as “communists,” and flew to a NATO summit in Turkey, where his fellow-strongman Recep Tayyip Erdoğan rolled out a turquoise carpet for him. Now it’s back to the hard stuff: the lingering conflict in the Middle East, the economy, and the midterm elections, which are less than four months away.These three phenomena are interlinked, and not in a good way for Trump. At the start of this year, the White House and Republican leaders were hopeful that, come summer and the midterm-campaign season, they would have some positive economic developments to point to. “Growth is exploding,” Trump told the Detroit Economic Club, in January. “Productivity is soaring. Investment is booming. Incomes are rising. Inflation is defeated.” Trump is an inveterate bullshitter, of course, but his Administration does employ some economists who have at least one foot in reality, and they, too, were feeling hopeful.Although the U.S. economy certainly wasn’t exploding with vigor, it had defied fears that his blanket tariffs would plunge it into a recession. In 2025, G.D.P. grew by 2.1 per cent—below the growth rates from the Biden years, but respectable enough. The inflation picture also seemed benign. In January, prices were rising at an annualized rate of 2.4 per cent—not far off the Federal Reserve’s two-per-cent target. This convergence raised hopes among Trump’s advisers that the central bank could soon resume cutting interest rates. Meanwhile, buoyed by enthusiasm for A.I., the stock market was hitting records on a regular basis, and Big Tech companies were making huge investments in chips, servers, and software. In the first three months of the year, these expenditures boosted G.D.P. by roughly 1.3 per cent on an annualized basis. “We’re getting very strong disinflationary growth,” Joseph Lavorgna, a seasoned Wall Street economist and then a counsellor to the Treasury Department, told CNBC, in February.Unfortunately for G.O.P. politicians who are on the ballot this fall, this optimism turned out to be largely wishful thinking. To be sure, the mania for A.I. investments continues unabated. Taken as a whole, though, the economy seems to be plodding along much as it did last year. In May, inflation rose to the highest level in more than three years—4.2 per cent—and last month job growth slowed sharply. Not surprisingly, many Americans are still in a funk over the cost of living, and Trump’s outlandish claims, which he still insists on repeating at every opportunity, ring hollower than ever. In a recent Harris poll, just sixteen per cent of respondents said the economy is getting better; fifty-seven per cent said it’s getting worse. (Even among self-identified Republicans, approximately one in four said things are improving.) Given these sentiments, it’s hardly surprising that Trump’s job-approval rating on the economy is in the cellar: thirty-two per cent, according to an Economist/YouGov survey released last week. In the same poll, his approval rating on inflation was even lower: twenty-seven per cent.Surely, the Trumpian economic scenario was wildly overoptimistic to begin with. (In January, Howard Lutnick, the Secretary of Commerce, predicted that G.D.P. growth would hit more than five per cent in the first quarter.) But the A.I.-investment boom is genuine enough; how long it can last is another matter. Conceivably, 2026 could have been a year of decent G.D.P. growth, falling interest rates, modest inflation, and rising real wages. But then Trump, in concert with Israel, decided to bomb Iran. As the war expanded, the price of a barrel of crude oil rose from about seventy dollars to more than a hundred and ten dollars. The cost of a gallon of gasoline, which had been under three dollars, on average nationwide, jumped to $4.50. And the prices of other oil products that play a crucial role in the economy, including fertilizers and plastics, also spiked.
