Most Americans Anticipate Trump's Presidency to Boost U.S. Debt
Friday, Nov 8, 2024 6:29 am ET
As the 2024 U.S. presidential election heats up, a recent Reuters/Ipsos poll reveals that a majority of Americans expect former President Donald Trump to increase the U.S. debt if elected. This article explores the potential fiscal implications of a Trump presidency and the economic concerns surrounding the U.S. debt-to-GDP ratio.
The poll, conducted in early November 2024, found that 58% of Americans believe Trump's presidency would lead to an increase in the U.S. national debt, while only 14% think it would decrease. The remaining 28% expect no change. These findings highlight the public's awareness of the potential fiscal consequences of Trump's economic policies.
Trump's proposed tax cuts and spending plans could significantly contribute to the U.S. budget deficit. According to the Committee for a Responsible Federal Budget, his 2016 campaign proposals would have added $5.3 trillion to the national debt over a decade. His 2020 budget proposal also included substantial spending increases, particularly for defense, while maintaining tax cuts. The nonpartisan Congressional Research Service estimates that Trump's 2020 budget would have resulted in a cumulative deficit of $11.8 trillion over a decade.
Trump's trade policies, such as tariffs and renegotiation of trade agreements, could also impact the U.S. trade balance and economic growth. The Penn Wharton Budget Model (PWBM) estimates that the proposed tariffs on Chinese goods could reduce U.S. GDP by 0.6% and eliminate 265,000 jobs by 2025. Meanwhile, renegotiating trade agreements like NAFTA could have mixed effects, with potential gains from increased manufacturing jobs offset by higher consumer prices.
The Federal Reserve's monetary policy is likely to be influenced by changes in the U.S. debt-to-GDP ratio under Trump's administration. According to the PWBM, even under myopic expectations, financial markets cannot sustain more than the next 20 years of accumulated deficits projected under current U.S. fiscal policy. If Trump's policies increase the debt-to-GDP ratio beyond this threshold, the Fed may need to raise interest rates to maintain economic stability and prevent inflation. However, higher interest rates can also increase the cost of servicing the debt, potentially exacerbating the debt problem.
International investors closely monitor the U.S. debt-to-GDP ratio, as it indicates the country's ability to service its debt. A rising ratio, as expected under Trump's policies, may lead investors to demand higher interest rates to compensate for increased risk. This could raise U.S. borrowing costs, making it more expensive for the government to finance its debt. A divided Congress might help maintain fiscal responsibility, but if Trump's costly policies are enacted, the U.S. could enter uncharted territory, potentially leading to higher long-term interest rates and economic instability.
In conclusion, the public's perception of Trump's fiscal policies highlights the importance of addressing the U.S. debt issue. As the election approaches, voters should consider the potential economic consequences of the candidates' proposals and the need for sustainable fiscal policies. The U.S. debt-to-GDP ratio is a critical indicator of the country's fiscal health, and it is essential to maintain a responsible balance to ensure economic stability and growth.