Trump and the Republicans’ landslide victory in November signified that the country is yearning for change, with Americans clearly telling Washington that “this isn’t working” in terms of the current status of the US.
While the mission is clear, implementing that transformation will be a massive challenge. The Biden-Harris administration has left our fiscal home in shambles, restricting Trump’s options and putting major policy objectives at odds with our budgetary reality.
Here are three major problems that the incoming government will face.
Spending cutbacks and deficit
With a $36 trillion debt load that is more than 120% of GDP and expanding at a rate of about $1 trillion per 100 days, as well as a deficit that is double the historical average in terms of a percentage of GDP, any spending cuts will need to be carefully planned.
Tools and strategies that were previously effective must now be used with extreme caution.
With disruptors Elon Musk and Vivek Ramaswamy leading the Department of Government Efficiency (also known as DOGE), they will be able to uncover significant budget and regulatory cutbacks. However, the execution must emphasize measures that raise GDP before reducing spending.
Massive government deficits have been supporting US GDP. Taking part of that away will immediately have the reverse effect, decreasing GDP. So, private sector growth must be accelerated first. Otherwise, if GDP falls and we enter a recession, the US will have lesser tax revenue, which could lead to larger deficits. This could affect the global economy and markets as well.
The focus and goal are crucial; yet, they must be implemented with extreme caution to avoid causing the economy to go haywire.
Oil production
One of Treasury Secretary nominee Scott Bessent’s three stool legs for his “3-3-3” economic strategy (along with debt reduction) is to unleash growth by increasing oil production by an additional 3 million barrels or more per day.
More manufacturing, the assumption goes, will boost our energy independence and reduce costs on almost everything. The difficulty is that the oil sector need a certain price to function profitably, and even higher prices to make investments and fill the pipeline (no pun intended) for future drilling and refining activities. A recent piece in the Wall Street Journal stated: “U.S. energy companies on average say they need WTI crude prices to be at least $65 a barrel for drilling to be profitable and $89 a barrel for them to increase drilling substantially, according to the latest survey by the Kansas City Federal Reserve.”
Experts feel that even with industry liberalization, the cost savings may not be sufficient to shift this trend.
From a practical sense, attempting to stimulate growth through oil output when oil prices have a hard floor is perplexing.
This is a challenge that the Trump administration will have to solve.
Tariffs versus the Dollar
The Trump administration has concentrated on both tariffs and a weakened dollar, creating a perplexing dilemma.
While some of Trump’s tariff plans may be part of his “art of the deal” strategy to establish new trade and economic accords throughout the world, others may have a chilling impact on small firms and overall economic growth.
Furthermore, tariffs are projected to bolster the US dollar. However, a significant aim of the government is to weaken the dollar in order to make it more competitive globally, so affecting many of the administration’s programs and goals.
I believe Trump, Bessent, and their staff will have a tough time implementing widespread tariff increases in light of their overall goals. Perhaps more targeted tariffs where there are legitimate national security concerns will make the policy wish a reality.
Trump has assembled a good staff and has an entrepreneurial vision, but his economic and financial challenges remain enormous. Americans will need to be patient as excellent policy goals are confronted with the country’s harsh fiscal reality.