Debt servicing costs are likely to limit Trump’s options over tax giveaways. Lowering the incidence on companies will pass the burden of deficit management on to voters grappling with inflation. His policies will have to address both the size of government debt as well as interest rates that jack up the cost of paying it off. Trump’s maths suggests tariffs can narrow the deficit. However, his administration would need to be convinced about the effects of trade spats. The Trump administration will want to trim spending that helped the Democrats avert a recession. Some of it was directed at restoring domestic manufacturing, a cause Trump endorses. Other areas such as addressing climate change are likely to feel a Republican squeeze.
A second Trump presidency may not allow enough headroom for his economic agenda. Inflation and interest rates will define how fast he can move. Sabre-rattling over trade is important for optics. But the budget needs more profound mending. Buyers of US government debt will keep Trump under pressure to work on the deficit, and he will need to tailor his economic agenda accordingly. The bond market has, on previous occasions, been a voice of reason US presidents could not afford to ignore. Since a big chunk of US treasury holders are foreign entities, it would also limit the Man from Mar-a-Lago tilting at trademills.