As Donald Trump begins his second term as President, he faces a significant economic challenge: the United States’ national debt has hit a record high of $36 trillion, with $2 trillion added in the last year alone. This massive debt poses a major hurdle to Trump’s policy goals, as the cost of servicing this debt is taking up a large part of the federal budget.
What is the National Debt, and Why is it a Problem?
The national debt represents the total money the US government owes to creditors, both domestic and international. Over the past few decades, the debt has grown rapidly:
- In 2000: $5.7 trillion
- By 2020: $23.2 trillion
- Post-COVID: The debt surged by $16 trillion, reaching $36 trillion today.
This rapid increase means the US is now spending a significant portion of its resources on just paying interest on this debt. Currently, debt servicing costs exceed $1 billion daily. As interest rates rise, borrowing becomes even more expensive, leaving less money for essential programs like education, infrastructure, and healthcare.
Debt-to-GDP Ratio: A Dangerous Trend
The debt-to-GDP ratio compares a country’s total debt to the size of its economy.
Currently, the US debt is 125% of its GDP (i.e., the debt is larger than the economy itself).
Experts warn this ratio could reach 200% in the coming years, meaning the debt could be twice as large as the entire US economy.
This would have severe consequences:
- The government would spend more on interest payments than on vital areas like development or defense.
- Future generations would face reduced economic growth and fewer opportunities.
Rising Interest Rates and Their Impact
As interest rates increase, the cost of borrowing rises:
- Mortgage rates and loan rates are becoming more expensive for households.
- The US government must pay more to service its debt, further straining the budget.
Economists warn that rising debt is pushing up interest rates across the board, making daily expenses like housing and groceries costlier for Americans. This could slow economic growth and limit the government’s ability to invest in long-term projects.
Trump’s Plan to Tackle the Debt
To address the rising debt, Trump has created the Department of Government Efficiency, led by Elon Musk and Vivek Ramaswamy. Their goal is to cut unnecessary government spending.
Proposed measures include:
- Reducing funding for public broadcasting.
- Cutting financial support for advocacy groups.
However, Trump’s plans for new tax cuts may make the debt worse. For example:
- He proposes reducing corporate tax rates further to 15%.
- Critics argue this will disproportionately benefit the wealthy and increase the deficit, as it reduces the government’s revenue.
Challenges Ahead
The growing debt makes it harder for Trump to balance his policy goals with financial realities. Rising interest rates and debt servicing costs are squeezing the federal budget, leaving less room for:
- Infrastructure improvements.
- National security spending.
- Programs that benefit ordinary Americans.
Some lawmakers are questioning the feasibility of Trump’s tax cuts, given the already large deficit. Experts suggest focusing on reducing wasteful spending instead of introducing new tax breaks.
Political and Economic Implications
The national debt issue is not just an economic challenge but also a political one. Both Republicans and Democrats have long debated how to manage the growing debt. Trump’s approach will shape the economic future of the US and his presidency’s legacy.
While Trump’s team remains optimistic about achieving economic growth, experts caution that ignoring the debt could harm the economy in the long term. If not managed carefully, the escalating debt could lead to higher taxes, reduced government services, and slower growth for future generations.
Trump’s ability to navigate this crisis will be a defining test of his leadership in his second term.
