Though many are worried about the potential economic harm of Donald Trump’s efforts to undermine the independence of the Federal Reserve and impose tariffs based on his impulses, discussion of these and similar issues rarely puts them in the broader context of the economic harm that comes from democratic backsliding. As a result, debate about the economic impact of Trump’s actions misses the forest for the trees.

The forest is that Trump is a threat to America’s prosperity not just because of tariffs or Fed meddling, but because his anti-democratic actions to evade limits on executive power, control the media, and tilt election rules undermine the foundations of long-run economic growth.

Strong democratic institutions—such as free and fair elections and rule of law—are the most important factors in long-run economic success. Why? Because these institutions force deliberation, constrain whims, and provide feedback, all of which promote higher quality governance and useful public investments, which in turn fosters an environment where people and businesses want to invest and innovate and helps to minimize economically destructive actions.

Autocrats get rid of checks and balances, which generally leads to increased corruption, less reliable government data, increased government debt, decreased support for education and health, and reduced international trade. Trump has led the United States in the wrong direction on all of these economic risk factors.

These are flashing warning signs of likely long-run economic damage. Ultimately, the risks that the U.S. economy grows more slowly than its competitors over the next few years or suffers an economic crisis have significantly increased because of Trump’s anti-democratic actions.

The Economic Importance of Democracy and Good Institutions

There is a large body of economic research highlighting the importance of democracy and high-quality governing institutions to long-run economic growth. Most notably Daron Acemoglu, Simon Johnson, and James A. Robinson were awarded the 2024 Nobel Prize in Economics for their work demonstrating the relationship between governing institutions and a country’s prosperity. One of Acemoglu and Robinson’s more cited papers is titled “Democracy Does Cause Growth.”

Research by many scholars, especially recent studies that address the limitations of earlier research, comes to a similar conclusion: Democracy is good for long-run economic growth. As democracy facilitates long-run growth, it also tends to ensure more stable economic performance and limit extreme financial crashes.

Democracy promotes economic growth because it leads to relatively good governing institutions that create an environment where people and businesses want to and can invest and innovate for the long haul. In more formal economic terms, democracy creates conditions that support and encourage productive activities, such as capital accumulation, skill acquisition, and invention, while at the same time limiting harmful activities like fraud and bribery that suppress growth.

Democracy and high-quality institutions do not necessarily lead to a quick economic boost but rather facilitate economic progress over time by allowing more people and businesses to take full advantage of their economic potential.

Better governance, or high quality “institutions” as some of the research calls it, encompasses a wide range of factors including the rule of law, bureaucratic quality, executive constraints, freedom of expression, clean elections, limited corruption, security of property rights, and public investments in health and education systems.

The importance of good governance for long-term economic growth is hard to overstate. The quality of institutions “trumps everything else,” according to Harvard economist Dani Rodrik and his colleagues, while the World Bank’s Stephen Knack argues that good governance is a “prerequisite” to sustained increases in living standards. Stanford economists Robert Hall and Charles Jones write that a country’s long-run economic performance is “determined primarily” by the quality of its institutions.

Economic growth provides the raw material necessary to improve living standards over time, though it does not guarantee that outcome. Indeed, the political failure over recent decades to ensure that most people benefited from economic gains is an underlying cause of democratic backsliding around the world. Yet, Trump’s actions are making economic inequality even worse, so he is harming long-run living standards in two ways—by reducing future growth and channeling the diminished growth to the wealthy.

Democratic Decline is Economically Harmful

Though there is far more research on the economic benefits of democracy and strong institutions, the smaller body of research on the economic impacts of democratic decline and related topics finds, unsurprisingly, that the absence of democratic checks and balances causes significant economic problems. Research in this vein may focus on authoritarianism, democratic backsliding, or “populist” leaders who commonly undermine democratic institutions based on claims of helping the people, but the core finding of this body of research is that weakening democratic institutions causes long-run economic harm.

For example, a 2025 paper from the Berlin Social Science Center showed relatively little economic effect during the first few years of transition to more autocratic rule but finds that the autocratic economic loss becomes bigger over time and leads to a pronounced decline in per capita income after two decades. Similarly, a 2023 paper finds that “populist” leaders perform about the same over their first three years compared to other leaders, but economic harm becomes visible soon after. By 15 years, GDP per capita is 10 percent lower (with a subsequent replication study confirming results).

Weak democratic institutions produce a less conducive environment for economically productive activities such as skill acquisition, investment, and innovation. The absence of checks and balances reduces accountability and limits the desire and ability of a leader to course correct, making it more likely for economically harmful policies and actions to prevail. More concretely, autocratic or “populist” leaders typically cause long-run economic harm through increased corruption, less reliable government data, excessive government debt, fewer resources devoted to education and health, and less trade and private investment.

A nice illustration of this research can be seen by looking at Viktor Orban, who undermined many of Hungary’s democratic institutions causing significant economic harm and is held up by Trump and other Republicans as a ruler to emulate.

During Orban’s first years in office after gaining full power in 2010, GDP growth and employment figures looked fine, even as he was undermining democracy. Yet over time, inflation and interest service on government debt as a percent of GDP reached EU highs and GDP growth slowed significantly. In 2010 Hungary ranked 4^th in GDP per capita out of the 11 post-socialist Central-Eastern European countries that joined the EU, but by 2023 it ranked 7^th – and by other measures of economic development its ranking dopped even more precipitously. Experts attribute Hungary’s economic failures to the “crippling” of institutional accountability, which led to widespread corruption, limited disclosure of economic data, higher debt, decreases in education spending, and wasted resources on a failed attempt at re-industrialization.

Relevance to the Trump Administration

Skeptics may question the relevance of this research to America today. The United States is a very rich democracy with long-established institutions, so cross-country studies that include poorer nations with less developed democracies may not hold many lessons. Further, a handful of non-democratic countries – such as Singapore – have maintained high levels of economic growth over long periods of time, indicating there are exceptions to the general rule about democracy being good for growth and authoritarianism being harmful.

Yet, there are many reasons to worry that the research about the economic benefits of democratic institutions and the harm of democratic decline is pertinent to the United States today.

First, some of the research does focus on America. One study, for example, found that democratic backsliding in U.S. states from 2000 to 2023 (as measured by things like degree of gerrymandering and restrictions on voting rights) “undermine[s] the foundations of long- run growth” by decreasing private investment in research and development and reducing innovation, particularly in key patent categories.

Second, Trump’s anti-democratic actions closely resemble those of autocratic leaders who cause significant long-run economic damage in other countries, rather than those of the exceptions to the rule. The more economically successful autocracies are led by “institutional” dictators, while the worst performing autocracies are ruled by “personalist” regimes where the whims of one person drive policy. Trump embodies the cult of personality, not a leader who works to build institutions. He has weakened press freedom, evaded constraints on the executive, attacked independent agencies, flaunted judicial rulings, and appears to be seeking to limit free and fair elections in the future (after having tried to overturn the results of the 2020 election). These anti-democratic actions undermine deliberation, limit feedback and accountability, and foster rule by impulse, which typically leads to economic harm.

Finally, and perhaps most importantly, the economic risk factors typical of democratic backsliding are already visible. Trump’s actions have produced increased corruption, less reliable government data, less international trade, fewer investments in education, and higher government debt. These economic risk factors are likely to harm the U.S. economy just as they do in the rest of the world.

Evidence of Economic Risk from Trump’s Anti-Democratic Actions

How Trump is increasing economic risks though greater corruption, less reliable government data, higher government debt, fewer investments in education, and decreased international trade and competition deserves closer attention.

Rise in Corruption

Anti-democratic rule tends to lead to higher levels of government corruption—the use of official power for personal gain—particularly among the executive.  This is exactly what we are now seeing. Indeed, Trump has broken norms and likely laws by soliciting contributions or concessions from major corporations, law firms, and foreign governments that increase his political power or financially benefit his family in exchange for favorable government treatment. He has also pardoned corrupt allies and has essentially stopped enforcement of public corruption cases. The most authoritative measure of the change in corruption since Trump took office will be released in February by Transparency International, but there is little doubt it will show a sharp worsening.

Corruption acts like a brake on the economy, taxing productive activity and protecting certain businesses at the expense of potential competitors. In other words, Trump’s corruption limits competition and siphons away productive investment while encouraging businesses to focus on currying his favor rather than innovating. Worse, corruption can act like a centripetal force, directing more and more business activity toward it and away from more productive actions – meaning that ever more firms will try to make money off $TRUMP and other meme coins rather than on useful inventions and improvements.

Limiting Truthful Information about the Economy

Anti-democratic leaders also commonly hide data indicating trouble and produce exaggerated statistics to make it appear their economy is doing better than it is. Trump’s censoring of climate-related data and the firing of the Bureau of Labor Statistics Commissioner for releasing truthful employment figures showing slowing employment are but two of several steps Trump has taken that limit the availability of quality, unbiased data and increase the possibility he can fudge the numbers.

Reliable statistics are critical for a properly functioning economy. Existing businesses, entrepreneurs, and families can’t make good plans without trustworthy economic information. Similarly, the costs of building, travel, and insurance increase without good climate and weather data. Limited or bad data can also lead to financial crises because it allows political leaders to steer their countries into worse economic trouble than they would otherwise be able to.

Increasing Government Debt

Government debt burdens generally increase under anti-democratic rule and not surprisingly Trump’s policies are expected to increase U.S. debt as a share of GDP. Though debt increased largely because of a tax cut passed by Congress and signed by Trump— rather than through antidemocratic means—Trump is following the pattern of other autocratic leaders by focusing on short-term stimulus to the economy at the expense of long-run prudence.

High levels of government debt can harm the economy by increasing borrowing costs for businesses and consumers, fuel inflation, and, at the extreme, potentially even lead to financial crises. Government debt is not always harmful, especially when it is used on public investments with high rates of return or to smooth out consumption during a recession. But Trump’s debt increases were not used for these purposes and thus carry less upside and greater risk—especially because America’s aging demographics exacerbate debt risks. Compounding the problem is that Trump’s actions also contributed to a lowering of U.S. bond ratings, which is typical of democratic backsliding and makes servicing the debt more expensive.

Cutting Investments in Education and Health

Anti-democratic rulers generally invest less in the social infrastructure, such as education and healthcare, that enable citizens to more fully develop human capital. Education and health are central to long-run economic growth. Education develops skills so workers are more productive, research and development increases innovation, while good health allows people to use their skills.

Again, Trump fits the mold of an economically harmful democratic backslider. He has pursued cuts to federal investments in elementary and secondary education, to colleges and universities, the student loan programs, as well as to university research and development. Many of these cuts have been accomplished by legally questionable means that stretch the bounds of executive authority, such as eviscerating the Department of Education staff in an attempt to eliminate the agency, freezing congressionally authorized grants to schools, and pressuring universities to enter into agreements with the Trump administration that will put their leaders in legal jeopardy. Similarly, Trump has cut funding for health coverage—leading to about 14 million more uninsured Americans by 2034—and undermined efforts to protect public health, some of which his administration has done through legally questionable methods.

Reducing International Trade and Competition

Greater international trade is generally good for growth because it leads to increased competition, gains from specialization, and faster productivity growth, yet trade with other countries typically decreases under anti-democratic leadership. There is a strong need to create a better trade regime for the U.S. and its workers, but there is little evidence that Trump’s actions are going to accomplish that.

Instead, there is considerable evidence that Trump’s trade actions are reducing trade and competitiveness. Trump has radically expanded executive authority (in possibly illegal ways) to impose near-record levels of tariffs, punishing or rewarding countries and their leaders based on his personal whims. Trump’s tariffs are reducing U.S trade (lowering levels of both imports and exports) and are expected to reduce U.S. GDP by an estimated 0.5 percent in 2025 alone.

Though it is possible to compensate for some of the economic harms of less international trade by, for example, fostering greater domestic competition or increased domestic investments, Trump is going the wrong way on these as well. U.S. manufacturing is in decline, with manufacturing investment declining since Trump took power, and job loss sharply accelerating after Trump increased tariffs April 2025. Antitrust policies could reduce monopolies and increase competition, but signs indicate Trump’s actions in this area will merely benefit his donors and political allies. Most comprehensively, private business investment has not increased under Trump and businesses say they plan to invest less in U.S. in the future. This means private business investment is likely to decrease under Trump, a result that would be consistent with other anti-democratic leaders.

There are a number of reasons to worry that Donald Trump’s actions to weaken democratic institutions are damaging the long-run economic strength of the United States. Checks and balances, such as limits on executive power, rule of law, an independent media, and free and fair elections are key drivers of long-run prosperity because they help create accountability, which leads to a favorable environment for productive activities and helps prevent harmful conditions. Yet Trump is acting like a typical authoritarian leader and damaging these institutions.

Signs of future economic harm are already visible, such as increased corruption, less reliable data, higher government debt, fewer resources devoted to education and health, and less trade. Though it may take time for the full economic costs of these problems to be felt, it is clear that Donald Trump is already undermining America’s future prosperity.