Reference News Network, July 8 report: The British magazine The Economist published an article titled "Trump Economics 2.0 Will Undermine the Foundations of American Prosperity" in its issue of July 5, with a subheading "The 'Build Back Better' Act Highlights Deeper Problems." The article argues that the "Build Back Better" Act will lead to increased debt, potentially causing 12 million people to lose health insurance, regressing clean energy policies, and exposing flaws in the legislative process, with the U.S. debt crisis and long-term economic risks continuing to accumulate. The full translation is as follows:

Is this just a false alarm? Since President Donald Trump implemented the so-called "Liberation Day" tariffs in April, panic over the global economy has given way to increasingly optimistic sentiment. So far, the inflationary effects of the tariffs have been relatively mild. Privately, bosses say they now expect the outcome of trade disputes to be a trade agreement. Surveys show that although business climate indices and consumer confidence indices are low, they are improving. In the stock market, the S&P 500 index has reached a new high.

As we reported, the "Build Back Better" Act passed by the Senate on July 1 and the House of Representatives on July 3 is less about the dream of "making America great again" and more like the traditional Republican tax cuts and spending reductions favored by Paul Ryan or Mitt Romney. Suddenly, corporate executives are once again willing to see Trump as the populist he was in his first term: someone who should be taken seriously, not just at face value.

Unfortunately, the "Build Back Better" Act may cast a shadow over this optimistic atmosphere. It reveals the long-term damage Trump is inflicting on the foundation of the American economy.

Highlighting Widespread Maladies

The main impact of the bill is to extend the tax cuts that were due to expire during Trump's first term. Republicans dress it up as maintaining the status quo. However, they, like their Democratic predecessors, ignore the fact that the status quo is unsustainable. Over the past 12 months, the U.S. budget deficit has reached a staggering 6.7% of GDP. If this bill passes, the deficit will remain around this level, and within about two years, the ratio of U.S. debt to GDP will exceed 106% - a level only reached after World War II. While the revenue from tariffs can help, it is insufficient to prevent this ratio from continuing to rise. In other words, the trend toward crisis will continue.

The bill slightly tightens spending, but in the wrong places. With increasing life expectancy and an aging population, the United States should cut subsidies for the elderly. Instead, retirees will receive tax breaks, while the Republicans will cut Medicaid, which provides health insurance for those in financial hardship. Some reasonable measures in the bill reduce the possibility of states exploiting loopholes to get more federal funds. However, according to official projections, the overall effect of the bill will be that nearly 12 million Americans lose health insurance. This is a shocking number for the world's richest country. Many of those losing insurance will be unable to meet the new work requirements for beneficiaries. Previously, such rules created cumbersome paperwork for applicants without boosting employment rates.

More "cuts" come from abolishing the clean energy tax credits passed under President Joe Biden. These tax credits are filled with protectionist "buy American" requirements. However, because Congress hates carbon pricing methods, there will be no policy to replace them. The United States will once again face a situation without a federal decarbonization policy, leading to higher greenhouse gas emissions than originally planned. Trump's nostalgia for fossil fuels ignores the potential of renewable energy to provide much more abundant energy supply. In a context where the competition for general artificial intelligence is, to some extent, a competition for the electricity needed to train large models, this is foolish.

The way this bill was passed also exposed the sluggish institutional dysfunction in the United States. The "Build Back Better" Act is large because the ruling party rarely has the opportunity to pass a tax and spending bill with just 51 votes in the Senate. In such a massive bill, important reform measures did not receive adequate review, and there was a large amount of pork-barrel spending used to buy support from legislators.

Increasing Long-Term Risks

It is wrong to expect this bill to create growth and prosperity. The tax cuts in the "Build Back Better" Act provide little new stimulus, and the tariffs offset them. Regardless, the current interest rate is three times what it was when Trump last cut taxes, and the Federal Reserve is more likely to counterbalance more lenient fiscal policy by adjusting its monetary policy stance. Supply-side tax cuts will help promote investment, but they account for only 8% of total spending. Many new tax cuts, including exemptions for tips and overtime pay, are merely gimmicks. The government's deregulation agenda might work, but its impact is minimal.

In fact, the U.S. government's rampant borrowing will increasingly harm growth. Normally, public debt crowds out private investment, increasing the cost of capital for new projects such as data centers. Goldman Sachs estimates that if Congress delays implementing fiscal austerity policies by another decade, annual spending cuts or tax increases would need to reach 5.5% of GDP to stabilize the debt-to-GDP ratio. This level exceeds the austerity policies endured by the eurozone after the sovereign debt crisis in the 2010s. If lawmakers find this too difficult, the United States may resort to the methods used after World War II: inflation and financial suppression.

The "Build Back Better" Act's lack of long-term consideration is part of a larger problem. With the U.S. economic power and undeniable negotiation leverage, Trump ignored the foundations of America's success. He again attacked the Federal Reserve, adding another threat to economic stability. He cut research funding, harming America's innovation. His casual attitude toward the rule of law makes the United States a riskier investment destination. Although his trade wars have eased, the average tariff rate remains at its highest level in a century, and the uncertainty of trade policy becomes a burden. In dollar terms, U.S. assets are growing, but they are falling in foreign currency terms. This year, the dollar has depreciated by 11%, reflecting that the long-term risks of the U.S. economy are real and growing. (Translated by Tu Qi)

The cover of The Economist magazine issue dated July 5

Original article: https://www.toutiao.com/article/7524633432786420234/

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