President Donald Trump claimed that tariffs would not only address the U.S. national debt of $36 trillion but also "MAKE AMERICA RICH AGAIN."

Comparing this strategy to the economic boom during the Second Industrial Revolution, Trump claimed that tariffs, not income taxes, created the greatest wealth for the country.

"Tariffs, and tariffs alone, created this enormous wealth for our Country," the president said. "Then we moved to income tax. We have never been wealthier than during this period."

The import tax plan of up to 20% (even higher rates for Chinese goods) is precisely the solution to the escalating debt crisis with no signs of slowing down.

The U.S. debt has reached $36 trillion.

As of January 2025, the U.S. national debt is over $36 trillion, an increase of $4.7 trillion in just 18 months. This is a sharp rise from $31.5 trillion when the debt limit was suspended in June 2023. Debt held by the public has surged, now at $28.7 trillion according to the latest data released in November.

This massive debt has far-reaching consequences for the U.S. economy. Interest rates are rising, borrowing costs are increasing, and the government's crisis management capacity is diminishing. Treasury Secretary Janet Yellen has warned that the government could reach its borrowing limit as early as January 14.

If Congress does not increase or suspend the limit, the likelihood of default could occur, seriously affecting the country's credit rating and collapsing global financial markets, from stocks to cryptocurrencies.

To extend the timeline, the Treasury Department has begun implementing "special measures." This includes rearranging funds and temporarily reducing some government internal debts. But these are only short-term fixes. By mid-2025, they will be exhausted.

Adding to the drama, the federal government ran a $2 trillion deficit in 2024, due to weaker-than-expected tax revenues. Both individual and corporate tax revenues fell, leaving the government with a large funding gap. Critics of Trump argue that his plans for tax cuts and tariffs will only further increase this deficit.

Trump’s tariff strategy and its risks.

Trump's plan focuses on tariffs ranging from 10% to 20% on imports, even higher for Chinese goods. For this guy, it's a simple equation: tariffs protect American industries, generate revenue, and narrow the trade deficit.

He points to the Second Industrial Revolution, from 1870 to 1914, as evidence that tariffs were effective. At that time, tariffs accounted for a significant portion of federal revenue.

Marc Andreessen, reflecting on that era, called it "perhaps the most fertile era for technology development and deployment in human history." Trump sees this historical precedent as validation.

But the economy in 2025 is not the economy of 1870. Critics argue that the world has changed, and so have the risks. Tariffs are likely to raise costs for businesses, which will pass those costs onto consumers. That means everyday goods will be more expensive.

Economists estimate that a 10% tariff could increase inflation by 0.3 to 1.2 percentage points, depending on the scope of its wide application.

Inflation, which had begun to cool after peaking at 9.1% in 2022, could flare up again. Forecasts suggest inflation could rise to between 4% and 9% by 2026 if Trump's policies are fully implemented.

Trump's tax cuts could also exacerbate the issue. Making them permanent could add another $7.75 trillion to the national debt over the next decade. Higher interest rates, driven by inflation and tariffs, will make government borrowing even more expensive.

Economists warn about twin deficits.

Literally, all of Trump's policies are raising red flags in economic circles. Many predict the return of "twin deficits," as both the budget deficit and trade deficit rise. This double whammy will weaken national savings and increase dependence on foreign capital.

Supply chains could also be affected. Tariffs, combined with Trump's immigration restriction policies, could create labor shortages. Fewer workers mean higher production costs, which will push prices even higher for consumers.

Sixteen Nobel Prize-winning economists signed a letter opposing his plan. They point out that it will not tame inflation and could make it worse. There is also the risk of retaliation.

Other countries may impose their own tariffs on U.S. goods, starting a trade war. This would harm U.S. exporters and further destabilize the economy.

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