Politically Speaking

Trump’s Tax Plan May Build Great Walls of Debt with China and Japan

wall of debtPresident Trump promised to build “US” a wall and I believe that he will make good on it. However, like most things Trumpian in nature, what he says is not always exactly what he does. In this case, there will probably not be a wall built between Mexico and the United States. Instead, we are more likely to get fantastically huge walls of debt with China and Japan as the GOP’s proposed tax plan is forecasted to raise the national debt by an estimated $1.3 to $1.6 trillion dollars over the next 10 years.

Normally, I wouldn’t make such a fuss about it since almost every elected POTUS has increased the national debt. However, because Trump campaigned so aggressively against raising the national debt and likened it to “a weight around the future of every young person in this country”, I am morally compelled to remind any American voters suffering from political dementia (read transcript of Trump’s speech at Renaissance Hotel in Columbus, Ohio on October 13, 2016). Never mind the fact that the catalyst for the debt increase under Obama was largely attributed to the tremendous bailouts of the 2008-2009 financial crisis or the inherited costly wars of the previous Bush administration’s foreign policy.

 

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Despite a reputation for hawkish fiscal policies, empirical data illustrates that when it comes to debt, some of the biggest percentage increases have occurred under Republican administrations. As most GOP lawmakers support the currently proposed tax policy, which will probably extend economic growth a little longer while unarguably increasing the national debt, the sanity of anticipating different results should be questioned. This tax plan is contingent upon economic growth and presumption that the natural ebb and flow of the economic business cycle can be manipulated or postponed. It is a Faustian bet on supply side economics, the opposite side of the Democrat’s demand side coin which also yields expanding debt, albeit not at such an accelerated rate. As the devil’s advocate, I ponder who will foot the bill to cover this additional deficit and all roads inimitably lead to China and Japan, who represent more than 1/3 of our international creditors when it comes to purchase of our sovereign debt.

 

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Relationships with both of these countries will remain very important for the U.S. and maintaining stable and cooperative foreign policies with each of these countries will be imperative, regardless of Trump’s bombastic tweets or questionable political rhetoric. As China’s economy continues to grow, it will emerge the more dominant player and indisputable cornerstone of our nation’s portfolio of finance sources, thereby giving it even more leverage for future foreign policy issues on trade and geopolitics. While Japan is number two, strategically it is on par with China when it comes to maintaining a stable fiscal policy. Should the economic growth projected from the tax plan fail to occur as anticipated, then the U.S. could find itself in the undesirable predicament of being contained between the credit walls of China and Japan. Both countries have their respective and sometimes conflicting geopolitical agendas, thus further complicating a delicate balance of foreign policies for future administrations and increasing geopolitical uncertainty. Something worth pondering…

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