The Resounding Win of Trump and the Republicans: A New Challenge for Change
The resounding win by Trump and the Republicans in November sent a clear message that the country is desperate for change, with Americans saying “this isn’t working” about the current state of the US. While the mandate is clear, the execution of that change will be a significant challenge.
The Biden-Harris administration has left the country’s fiscal house in disarray, limiting the options available to President Trump and putting core policy proposals at odds with fiscal reality. Here are three of the biggest challenges the incoming administration will need to navigate:
Spending Cuts and the Deficit: Any spending cuts will require careful choreography, given the country’s $36 trillion debt load, which is above 120% of GDP, and growing at a pace of around $1 trillion every 100 days. Trump’s team will need to prioritize efforts that increase GDP before cutting spending, as massive government deficits have been propping up US GDP and taking away from it could lower GDP and lead to a recession.
Oil Production: The Trump administration’s plan to increase oil production by an incremental 3 million barrels or more per day to increase energy independence and lower costs is a challenge. Oil companies need a certain price to operate profitably and higher prices to make investments and fill the pipeline for future drilling and refining. The Trump team will need to solve the puzzle of spurring growth with oil production when there is a hard floor on oil prices.
Tariffs vs. the Dollar: The Trump administration’s focus on tariffs and a weaker dollar creates a paradoxical challenge. Tariffs may strengthen the US dollar, which is opposite to the administration’s goal of weakening it to make it more competitive globally. Trump’s team will need to find a balance between the two, perhaps through targeted tariffs with real national security issues, rather than widespread hikes.