On January 20, the new (or old) President of the U.S., Donald Trump, will be inaugurated, and the big question on the minds of private investors and governments alike is: what now?
Throughout his campaign, Trump made numerous promises, including tackling the US national debt, ending the Ukraine conflict in one day, and, of course, imposing tariffs against the rest of the world.
In addition, he promised to cut taxes, including those for corporations. This fueled optimism in the markets, which boosted the S&P 500, Nasdaq, and Dow Jones following the announcement of the results.
But will Trump deliver all his promises?
Throughout his political career, Trump has made many promises but has not always kept them. A clear example is the construction of the wall with Mexico, the main issue of his previous campaign.
First, out of the 1,000 promised miles, which were later reduced to 500 miles, only 47 miles of new barriers were built. The rest were renovations of existing structures.
Second, and perhaps more importantly, U.S. taxpayers ended up paying $15 billion for this, not the president of Mexico, as initially promised. Nor did it solve the illegal immigration problem.
Trump also promised to eliminate the national debt, which ballooned by $8.4 trillion. The same trend is expected to continue, and the debt is unlikely to fall below $36 trillion soon.
According to the nonpartisan Committee for a Responsible Federal Budget, its tax cut proposals alone will add $7.5 trillion to the national debt over the next decade. The BTC reserve likely won't help solve this issue.
The main issue is that the government already spends massive amounts to service the debt. From $476 billion in 2022, the cost has risen rapidly to $882 billion in 2024 and is expected to continue growing.
As Bankinter analysts highlight, a 3% deficit combined with 3% in interest payments exceeds the typical GDP growth rate of 4.5%. This leads to a continued 1.5% increase in the debt-to-GDP ratio.
Not surprisingly, despite four rate cuts totaling 1%, yields on 10-year U.S. Treasury bonds remain higher than where they started the year (well before the Fed changed monetary policy).
Another potential setback could come from resolving the geopolitical crises, especially between Russia and Ukraine, where neither side seems willing to budge on their positions.
Bottom line?
Trump may be able to deliver on his promises when he has all the necessary levers of power, or he may not. In this regard, making big bets on guaranteed outcomes seems risky.
