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A Treasury analysis has found the Trump administration’s economic policies have put the US on track to narrow its yawning deficit using a mix of spending cuts and tariff revenue to improve the fiscal outlook.
The estimate shows that in the three months to June, the first full quarter of Trump’s second term, government outlays were up 0.2 per cent compared with a year earlier. The rise is much smaller than in the previous four quarters, when spending was up between 7.1 per cent and 28.5 per cent.
In the third quarter this year, spending was down 2.5 per cent compared with a year earlier.
The Treasury also estimated that the US president’s trade tariffs, one of his landmark economic policies, are set to raise $300bn this year, with around $400bn anticipated next year based on current monthly revenues.
“We are going to be in much better shape than people think,” said Joe Lavorgna, economic counsellor to US Treasury Secretary Scott Bessent. “Most of the time people come in and think it’s business as usual, but there’s no question that the Trump administration has made rapid progress on tariffs.”
The Congressional Budget Office, the US fiscal watchdog, expects tariffs to lower the deficit by $4tn over the next 10 years.
The budget office projected that Trump’s landmark spending legislation will add $4.1tn to the deficit — a calculation the Treasury said underestimates the impact of tax cuts and other measures taken by the administration to boost growth.
The US has run a federal deficit of around 6 per cent of GDP in recent years, despite unemployment being at historically low levels. US Treasury secretary Scott Bessent has targeted a 3 per cent deficit by the end of Trump’s second term.
The IMF, meanwhile, does not expect the US to make any progress in lowering its deficit from current levels.
The fund said last week that the US needed to do more to tackle its deficit, which it said is set to remain the widest among the world’s richest countries. The IMF placed blame for the US’s large debt pile on both the Biden and now the Trump administrations.
“What people are missing is the fact that much of the improvement in this year’s fiscal deficit has happened from April onwards,” said Lavorgna.
“On the revenue side, we’re getting a lot more from tariffs. More importantly is that spending isn’t growing as quickly,” he added.
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