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Trump and Republicans’ resounding win in November It signals that this country is desperate for change. The Americans clearly told Washington: “It’s not working” compared to the current state of the United States.
Although the mandate may be clear But implementing that change will be a big challenge. The Biden-Harris administration has thrown our fiscal treasury into complete disarray. It limits the many options Trump will have. as well as making key policy proposals conflict with our fiscal realities.
Here are three of the biggest challenges the incoming administration will face.
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Cutting spending and deficits
With a debt burden of $36 trillion that is more than 120% of GDP and growing at a rate of about $1 trillion every 100 days, and a deficit that is double the historical average as a percentage of GDP. Any spending cuts have to be carefully choreographed.
Tools and tactics that may have been used in the past must now be used more carefully.
With obstructionists like Elon Musk and Vivek Ramaswamy at the helm of government efficiency. (Also known as DOGE), they will be able to easily identify adequate spending and deregulation. However, actions must prioritize efforts that increase GDP before reducing spending.
Massive government deficits have increased U.S. GDP. Removing some of that would have the opposite effect, lowering GDP. So private sector growth needs to be stimulated first, otherwise GDP will drop. down and we enter a recession. The US will see tax revenue decline. And we could end up with even bigger deficits. This may affect the economy and the world market as well.
Focus and planning are important. It just needs to be handled with extreme caution. This is to prevent the economy from being disrupted in this process.
oil production
The three-legged stool of Scott Bessent, one of the Treasury Secretary nominees for his “3-3-3” economic plan (along with deficit reduction), is unleashing growth by increasing oil production. Ours are increasing by 3 million barrels or more per day.
In theory, more production increases our energy independence and reduces costs of everything. The challenge is that the oil industry needs stable prices to operate profitably. and higher prices to invest and fill pipelines. (no pun intended) for future drilling and refining A recent Wall Street Journal article noted that “On average, U.S. energy companies It said they need a WTI crude oil price of at least $65 per barrel for drilling to be profitable and $89 per barrel to significantly increase drilling. According to the latest survey by Federal Reserve Bank of Kansas City”
Experts believe that despite deregulation of the industry But it may not be cost-effective enough to reverse this change.
Trying to stimulate growth through oil production when oil prices have firmed up from a practical standpoint is a conundrum.
This is a conundrum the Trump administration will have to solve.
Tariffs vs. Dollar
The Trump administration is focused on both tariffs and a weaker dollar. This is a dynamic that again creates conflicting challenges.
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In terms of taxes, although some proposals may be Trump’s “Art of the Deal” to chart new trade and economic deals around the world, but other tariffs could have chilling effects on small businesses and overall economic growth.
The tariffs are also expected to strengthen the U.S. dollar. However, the administration’s key focus is on weakening the dollar to make it more globally competitive. and affect many of the policies and objectives of the administration.
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I believe Trump, Bessent and team will have a difficult time with widespread tax increases in the context of what they are trying to accomplish overall. Perhaps more targeted tariffs that have real national security problems is where political aspirations will become reality.
Trump has assembled many strong individuals on his team and has an entrepreneurial vision. But his work in economics and finance remains a daunting task. Americans must have patience. This is because good policy objectives are confronting tight US fiscal realities.
