«Plus ça change, plus c'est la même chose»

In my previous article, I wrote that it would only be a matter of time before Trump realized that his policy would not hold. However, I didn’t expect him to reverse course quite so quickly.
 

The import tariffs were soon reduced

Barely a week later, the U.S. and China mutually reduced their import tariffs by 130 percentage points. As things stand now, Chinese import tariffs are at 10% and U.S. import tariffs at 30%, of which 10 percentage points are actual import tariffs. The remaining 20% are linked to China’s alleged role in the U.S. opioid crisis.

An important caveat is that this reduction is currently only valid for 90 days. If negotiations between the U.S. and China don’t yield results, the tariffs could be raised again. For now, however, that seems unlikely.
 

What’s next?

Now that the import tariff drama has temporarily faded into the background, we can zoom out and take a broader look at U.S. spending and revenues. In addition to a trade deficit, the U.S. also has a growing budget deficit. In theory, this is easy to solve: spend less, raise more revenue, or both. In practice, it’s not so simple.

To make structural changes, decisions are needed that politicians typically shy away from—think raising taxes or cutting Social Security, measures that are generally unpopular with the electorate. So Trump came up with a different idea: generate more revenue through higher import tariffs. But this turned out to be less sustainable than expected.

Since increasing revenues currently seems unlikely, this piece focuses on the spending side of the story.

Symbolic savings

Let’s start with the Department Of Government Efficiency, also known as D.O.G.E.—an initiative launched by Trump and led by Elon Musk, aimed at increasing federal government productivity and curbing wasteful spending. The latter is particularly relevant. During Trump’s campaign, it was claimed that under the Biden administration, over $2 trillion in taxpayer money had been wasted by the U.S. government.

It has since become clear that D.O.G.E. has only managed to save $170 billion. That’s equivalent to about 2.5% of the 2024 federal budget, which totals $6.8 trillion.

The outcome fell short for two main reasons:

1. The projected savings were vastly overestimated. In practice, there was no substantiated or verifiable waste anywhere near the $2 trillion mark.
2. Major spending categories were off-limits. Budget items such as defense, social security, and interest payments on government debt—which together account for more than 75% of the federal budget—were not to be touched. That made it virtually impossible from the start to cut $2 trillion in expenditures.

Figure 1: Social Security, Medicare, and Medicaid account for nearly 75% of mandatory spending

Figure 2: Defense spending accounts for nearly half of total discretionary expenditures

Structural reductions in existing government spending appear to be unsuccessful, and there is, as yet, no sign of an actual decrease in total expenditures.

The BBB: “Big Beautiful Bill”

Let’s take a look at the current budget proposal from Trump and the Republicans, known as the Big Beautiful Bill. Below is a selection from the 1,117-page document:

• Making permanent the tax cuts Trump implemented during his first term;
• No taxes on tips and overtime pay;
• Reductions in Medicare spending;
• Increases in the defense budget.

All in all, the result is that the budget deficit is projected to grow by around $4 trillion over the next ten years, while GDP is expected to increase by only 0.6%. This means the budget deficit would rise from 6.4% to approximately 9% of GDP by 2035.

This isn’t an immediate cause for alarm, but it is striking for a president who repeatedly promised during his campaign to balance the budget.

What now?

Even before the expected hard economic data came in, Trump had already changed course and shifted attention to government spending. But after examining this, the only reasonable conclusion is that nothing has actually changed.

• The budget deficit continues to grow.
• Greenland is not being annexed.
• Canada is not becoming the 51st state of America.
• Import tariffs have been significantly reduced.

“Plus ça change, plus c’est la même chose.”

The party goes on

Doomsday scenarios for the U.S. economy seem to have been averted for now. The economy is expected to continue growing. Given Trump’s unpredictability, it’s important to stay vigilant, but for now, the party goes on. This is good news for risk assets like equities and Bitcoin, and bad news for bonds.

P.S. If you're still concerned about the credit downgrade of U.S. sovereign debt by Moody’s on May 16: you can consider it entirely irrelevant. No one pays attention to it—except Moody’s themselves.

This article was written in a personal capacity by Christophe Augrandjean and does not constitute financial or investment advice.