Whither the U.S. Fiscal and Trade Deficits

Thanks to the AI investment boom, the U.S. economy has performed well at the macroeconomic level. However, it is on an unsustainable fiscal and debt path. Mr. Trump’s fiscal policy in his second term has aggravated this trajectory. In turn, Mr. Trump’s tariff-based trade policy has failed to address what he sees as U.S. economic problems associated with the trade balance. 

Besides explaining why this has been the case, and what its implications are for the U.S. economy and the rest of the world, this policy paper addresses what it would take for the U.S. to reverse both its fiscal position and the erosion of confidence in the U.S. as a global trading partner.