Ioana Dorhoi, PhD – Government Relations and Public Affairs

February 23, 2025

By Ioana Monica Dorhoi, PhD

As the Trump administration continues to reshape Washington, D.C., its impacts on the city’s economic landscape are becoming starkly evident. With the President’s aggressive restructuring of the federal workforce and local governance, the metropolitan area is bracing for an economic downturn.

Washington’s economy has long been anchored by its federal workforce, with over 300,000 federal employees in the region. These highly educated and well-compensated individuals have historically provided a stabilizing force, allowing the area to weather economic storms more resiliently than other parts of the country. However, under the Trump administration, this long-standing pillar of economic stability is starting to erode.

At the forefront of these shifts is the large-scale reduction in federal employment. President Trump’s directive to revoke federal employees’ remote work options has led to a wave of resignations and layoffs. Approximately 75,000 federal workers nationwide have already stepped down after being offered incentives, and thousands more could follow, including workers under Elon Musk’s Department of Government Efficiency plan. The layoffs are causing significant ripple effects, particularly in industries dependent on government contracts and services.

Local private businesses are also feeling the strain. As federal employees adjust to new work environments and incomes, many are pulling back on their spending. The uncertainty surrounding the future of the federal workforce has led to a dramatic slowdown in consumer confidence, further amplifying fears of an impending recession. Terry Clower, a regional economist at George Mason University, warned that if the administration’s policies move forward, the D.C. area could easily slide into a recession this year.

State officials are now turning their attention to the impact on local governments. Virginia’s House of Delegates has formed an emergency committee to address the potential consequences of these federal workforce changes, while Maryland’s Governor Wes Moore has expressed concern over the state’s reliance on Washington’s economy. Though the two states are politically aligned with the capital, they are bracing for the potential fallout.

Even the District of Columbia itself is under threat, as President Trump has continued to advocate for reducing local autonomy. Having previously criticized the city, he recently suggested that the federal government take over D.C.’s governance altogether. This push for federal control has prompted unease among city officials, including Mayor Muriel Bowser, who remains concerned about the city’s vulnerability to the shifting political tides.

D.C. leaders are increasingly focused on diversifying the city’s economy. With the area’s over-reliance on federal jobs, the city has started investing in new industries, particularly in technology and culture. Mayor Bowser’s office has worked to revitalize downtown with mixed-use developments, and tourism remains a key area of economic strength. The upcoming WorldPride event in 2025 is expected to bring millions of visitors, but even that event has been impacted by the administration’s policies. Several LGBTQ+ organizations and corporate sponsors have withdrawn their support due to concerns over the Trump administration’s stance on LGBTQ+ rights.

Despite the optimism surrounding these efforts, the near-term outlook for Washington, D.C. is uncertain. As the city navigates these economic shocks, local officials will need to balance the city’s dependence on federal government and the urgent need for a broader economic foundation to sustain its growth. The coming months will be critical in determining whether the region can maintain its long-standing stability in the face of such significant upheaval.