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Trump and the Republican Party's landslide victory in November sent a clear message to Washington that the country's current state of affairs is not working, and showed that the country desperately needs change.
The mission may be clear, but implementing the change will be a major challenge. The Biden-Harris administration has completely disrupted our nation's finances, limiting many of the options available to President Trump and making core policy proposals inconsistent with fiscal realities.
Here are three of the biggest challenges the next administration will have to overcome.
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Spending cuts and deficits
We have a debt burden of $36 trillion, over 120% of GDP, increasing at a rate of about $1 trillion every 100 days, and a budget deficit as a percentage of GDP that is twice the historical average. , spending cuts will require careful planning. .
Tools and tactics that may have worked before must now be used more carefully.
With disruptors Elon Musk and Vivek Ramaswamy leading the Department of Government Efficiency (better known as DOGE), it will be easy to spot generous spending and regulatory cuts. However, before cutting spending, efforts to increase GDP must be prioritized.
Huge government deficits are supporting the US GDP. Taking away any part of it will quickly backfire and reduce GDP. Therefore, we must first accelerate the growth of the private sector. Otherwise, if GDP declines and the economy enters a recession, U.S. tax revenues could decline, ultimately widening the deficit. This could also affect the global economy and markets.
Focus and planning are important, but they just need to be done very carefully so as not to disrupt the economy in the process.
oil production
One of the three pillars of Treasury Secretary candidate Scott Bessent's “3-3-3” economic plan (along with reducing the budget deficit) is to increase our nation's oil production by more than 3 million barrels per day. It is about unlocking growth by increasing.
The theory is that more production increases energy independence and reduces the cost of almost everything. The challenge is that the oil industry needs a certain price to operate profitably, and an even higher price to make investments and fill pipelines (no kidding) for future drilling and refining. It is to be. A recent Wall Street Journal article states, “A new Wall Street Journal study finds that U.S. energy companies, on average, need at least $65 a barrel to make a profit on drilling, and they have to spend significantly more on drilling.'' “WTI oil prices need to be above $89 per barrel to increase the oil price to $89 per barrel.” Kansas City Federal Reserve System. ”
Experts believe that even deregulation in the industry may not reduce costs enough to change this dynamic.
From a practical perspective, trying to stimulate growth in oil production when there is a hard floor on oil prices is a challenge.
This is a puzzle that the Trump administration will need to solve.
Relationship between tariffs and the dollar
This dynamic once again creates paradoxical challenges, as the Trump administration focuses on both tariffs and a weaker dollar.
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On the tariff front, some of the proposals could be President Trump's “art of deal” to introduce new trade and economic agreements globally, while other tariffs could hurt small businesses and economic growth overall. May have a chilling effect.
Additionally, tariffs are expected to strengthen the US dollar. However, a key focus of the administration is weakening the dollar in order to increase global competitiveness and influence many of the administration's policies and goals.
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I believe Mr. Trump, Mr. Bessent, and their team will have a hard time with widespread tariff increases given what they are trying to accomplish overall. Perhaps, where there are real national security concerns, more targeted tariffs would make policy wishes a reality.
Although Trump has many strong talents on his team and an entrepreneurial vision, his task remains economically and financially difficult. Americans will have to have patience, as good policy goals face America's harsh fiscal realities.
