The Shifting Sands of Trump's Economic Policy
Donald Trump's economic policies have undergone significant changes since taking office. Wall Street has even developed a trading model, "TACO" (Trump Always Checking Out), to capitalize on his policy reversals. This article will examine these shifts and their potential implications for the U.S. economy.
TACO: Trading on Presidential Reversals
The "TACO" trading model reflects the observation that Trump often reverses course on policies within 24 to 48 hours of encountering resistance. This volatility creates opportunities for traders who can anticipate these shifts and profit from them. However, finance is a complex field, and such strategies carry inherent risks.
Key Policy Changes and Their Impact
Let's analyze some of the key policies and their evolution during Trump's time in office.
Trade War
The initial "flash war" approach to trade has seemingly evolved into a more protracted conflict. The U.S. has struggled to reach trade framework agreements with many countries, with only the UK reaching an agreement thus far. This has led to skepticism about the reliability of U.S. government statistics.
Monetary Policy
Despite pressure on Federal Reserve Chairman Jerome Powell from the Democratic Party, it's anticipated that there will only be two rate cuts this year, starting in September.
The "One Big Beautiful Bill"
The House of Representatives passed the "One Big Beautiful Bill," a tax and spending bill. While seemingly designed to promote prosperity for American families, workers, villages, and towns, critics argue that it resembles a campaign advertisement more than concrete legislation.
Immigration Policy
The Trump administration's crackdown on illegal immigration in Los Angeles has far-reaching economic consequences.
Abandoning Deficit Reduction
The Trump administration has largely abandoned its initial goal of reducing the financial deficit. Many policies aimed at reducing government spending and increasing financial income have been repealed or cancelled. The U.S. financial deficit is now expected to expand significantly.
Re-examining Trump's Economic Strategy: A Deeper Dive
To understand the current economic landscape, it's important to analyze the core contradictions within the U.S. economy.
The Core Contradiction: US Debt vs. US Dollar
A central tension exists between the U.S.'s growing debt and the stability of the U.S. dollar. Since the 2008 financial crisis, government spending has become a key driver of the U.S. economy. This trend continued under President Trump, who implemented the largest financial stimulus in U.S. history during the 2020 pandemic.
In 2024, the U.S. state and federal fiscal expenditure combined reached $11.67 trillion, accounting for 40% of the GDP. This reliance on government spending has led to a massive national debt of around $370 trillion. The U.S. government relies on borrowing to fund this expenditure, with lenders including:
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U.S. domestic holders (25%)
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Foreign central bank investors (25%)
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The U.S. Federal Reserve (as the lender of last resort)
This debt-driven model requires the U.S. to export dollars, obtain goods and services, and then attract those dollars back to purchase U.S. debt.
Trump's Initial Attempts to Reverse the Debt Drive
Trump initially aimed to reverse this debt-driven model by bringing manufacturing back to the U.S. and discouraging foreign investment in U.S. assets. His initial policy plan focused on:
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Opening up the government.
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Reducing debt.
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Forcing jobs back to the U.S. to increase taxes.
The Failure to Execute and the Shift in Policy
However, the trade war and other factors derailed these plans. Government efficiency did not improve, and foreign investors lost interest in U.S. debt, leading to a surge in U.S. debt yields. As a result, the Federal Reserve was forced to act as the lender of last resort, leading to a potential depreciation of the dollar.
Analyzing the "Big Beautiful Bill"
The "Big Beautiful Bill" includes tax cuts and promises of reduced government spending.
Tax Cuts
Tax cuts are to be implemented immediately, and are estimated to cut taxes by $2.8 trillion in 10 years.
Spending Cuts
Spending cuts are to be implemented later, with 90% of the cuts occurring in 2030 to 2034, which is after Trump's term.
The bill's tax cuts primarily benefit the wealthy, reducing personal income tax and inheritance tax. Simultaneously, it reduces expenses by cutting medical subsidies, supplementary nutrition assistance programs, and student loan subsidies. Economically, money given to the poor has a much bigger impact than money given to the rich.
Controversial Clauses: 899 and 112105
The bill also contains clauses that could impact foreign investors, including clauses 899 and 112105:
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Clause 899: Foreigners with passive income from the U.S. (stocks, bonds, interest, housing rents) face additional taxes that increase by 5% each year, up to 20%.
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Clause 112105: Non-American citizens will need to pay a total of 5% tax when withdrawing their money from the United States. This tax is based on the total amount of deposit, not the increase.
These clauses could deter foreign investment. The bill is essentially promoting the U.S. financial market at the expense of expanding U.S. debt.
The Impact of the Illegal Immigration War on the Economy
The deportation of illegal immigrants could have significant economic consequences.
Job Vacancies and Inflation
The expulsion of illegal immigrants will lead to job vacancies, which will lead to higher wages and inflation. The PIE forecast indicates that expelling even a fraction of illegal immigrants could significantly increase inflation.
Conclusion: A Shift in Economic Strategy
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Trump's economic strategy has shifted from saving the U.S. economy to saving its own midterm elections.
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Current policies prioritize tax cuts and the expulsion of illegal immigrants, which influence inflation rather than GDP.
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Inflation will be more reflected in the dollar index, the debt index, and the stock index.
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The success of the Trump administration's debt management efforts will be critical for the future of the U.S. economy.
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