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Cui bono Trump? Whose interest does he serve? As Ivan Krastev has noted, he is serving his own interests in grotesque fashion. But what about other people? We know from the brutal closure of USAID that he cares not a jot for the poor overseas. But does he show concern for the ordinary Americans who voted for him? The One Big Beautiful Bill Act (OBBBA) wending its way through Congress shows that the answer is “no”. It is a powerful example of “pluto-populism” (“plutocratic populism”), as I first called it back in 2006. The rich receive most of the goodies; the poor become poorer; and the fiscal deficit stays huge.
Tariffs are a sales tax on imported goods, which will also tend to raise the prices of domestic substitutes. By and large, poorer people spend a higher proportion of their income on goods than richer people who spend a higher proportion on services or are saving much of it. So tariffs are regressive, as Kimberly Clausing and Mary Lovely of the Peterson Institute for International Economics argue. That may be part of why Trump loves them. Meanwhile, his tax cuts go mostly to the wealthy.
The Yale Budget Lab has estimated the impact of the tariffs implemented as of June 1 2025 and the OBBBA, as passed by the House of Representatives. Of course, the latter is likely to change. But the fact that it was passed by the House of Representatives at all is startling. In brief, the combination of tariff increases with the OBBBA “would reduce after-tax-and-transfer incomes on average among the bottom 80 per cent of US households. The bottom 10 per cent of households would see an average reduction of more than 6.5 per cent in incomes, while those at the top would see an increase of nearly 1.5 per cent.” (See charts.)
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Also, according to the Yale Budget Lab, as “conventionally scored, OBBBA costs $2.4tn as written ($4tn if the temporary provisions become permanent). The tariffs implemented as of June 1 would raise $2.4tn.” If this judgment turned out to be short of reality (I suspect tariffs will not raise as much money as that), Clausing and Lovely’s conclusion that, “as fiscal policy, the Trump agenda amounts to regressive tax cuts, only partially paid for by regressive tax increases” would be correct.
In his Substack, Paul Krugman concludes that he has “a pretty jaundiced view of [Republican] intentions. But this bill is so cruelly regressive that it shocked even me.” It is also, I think, so cynical. According to a letter from the non-partisan Congressional Budget Office (CBO), the number of people without health insurance might rise by 16mn by 2034, as a result of proposed changes, in OBBBA and elsewhere. There are also to be cuts to the food stamps programme. It cannot be incorrect to state that many will die in order to afford large tax cuts for billionaires.
If we assume next to no effect of Trumponomics on US economic growth, the net effect on the fiscal position of the tariffs plus OBBBA seems to be a continuation of the previous fiscal trends. Thus, fiscal deficits will stay large and debt will rise relative to GDP. In The Long-Term Budget Outlook 2025-55, the CBO projected that the ratio of federal debt held by the public to GDP would rise from 100 per cent this year to 118 per cent in 2035.
In his book How Countries Go Broke: The Big Cycle, Ray Dalio of Bridgewater argues that the reduction in the deficit needs to be 3-4 per cent of GDP, to stabilise the debt ratio. Is such an adjustment essential right now? The honest answer has to be that nobody knows. The US is the world’s biggest and most consistently dynamic economy and issues the world’s reserve currency. This gives it huge room for manoeuvre. But nothing lasts forever. If people lose confidence in the US, it could be forced to roll over debt on ever more unfavourable terms. Ultimately, much of it might become short term and so at interest rates set by the Federal Reserve.
The latter would then be under pressure to keep interest rates low. The impact of such debt monetisation cum financial repression could be highly destabilising. As MIT’s Rudiger Dornbusch once stated, “In economics, things take longer to happen than you think they will, and then they happen faster than you thought they could.” So, the sensible choice is to change course before it is too late. This makes even more sense if you have decided to wage a bitter trade war upon almost all your creditors: the harsh experience of Trump’s presidency will surely transform the world’s perception of the US.
In general, populism should be defined as a form of politics that sets “the people” against “the elites”. Populists can be of the left or of the right. Trump’s populism is evidently of the right, since it emphasises culture, ethnicity and nationhood. This provides fine cover for policies that benefit the plutocratic elite over almost everybody else. But in an excellent 2023 paper, “Populist Leaders and the Economy”, Manuel Funke, Moritz Schularick and Christoph Trebesch reach two conclusions that apply to both rightwing and leftwing populists: first, both sets tend to inflict lasting damage on democracy itself; and, second, their imprudence, nationalism and assaults on institutions tend to impose large economic costs.
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In the US, both parties have now effectively come to agree on the unimportance of fiscal prudence. Certainly, the Democrats have by now come to see little benefit from it, since it has so often set the stage for regressive tax cuts. A good guess then is that US indebtedness will go on rising. Dalio’s warnings are then prescient. As the late Herbert Stein once said, “If something cannot go on forever, it will stop.” The questions are only when and how painfully.
martin.wolf@ft.com
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