If the negative result in public accounts continues, the North American debt would today go from 125% of GDP to 140% by 2040
The International Monetary Fund drew attention to the high American fiscal deficit, currently close to 6% of GDP. According to the agency, if the negative result in public accounts continues, the North American debt would today go from 125% of GDP to 140% by 2040.
It is not new that debt continues to grow. In the mid-1980s, debt was just 30% of GDP. The growth stems from the increase in public spending on business subsidies, social security spending and military operations around the world.
President-elect Donald Trump decided to attack this problem by raising protectionist tariffs to make the trade balance surplus, increase government revenue and reduce the American fiscal deficit.
However, Trump uses the wrong medicine to attack the disease, reversing the diagnosis. The North American trade deficit is caused by the high fiscal deficit, not the other way around. This is what economists often call a twin deficit.
Protectionism can further worsen the problem, as other countries also place trade barriers against the US, which can reduce North American imports. With tariffs ineffective, there is no other solution than following the IMF’s prescription: reduce public spending.
Trump should follow the economic advice of the IMF or his friend Javier Milei.
*This text does not necessarily reflect the opinion of Jovem Pan.
