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be easily made that for its own economic well-being, China should increase its domestic spending, particularly consumption, rather than relying on export-led growth. And China recently announced plans to boost domestic consumption in response to U. S. tariffs. If China avoids this realignment, its membership in the World Trade Organization system can and should be questioned.
But there is an important flip side of the plan to bring about a global economic realignment. While some economies, like China and Germany, need to increase domestic spending, the U. S. needs to increase national saving. While national saving represents private saving( by households and corporations) and public tax cuts that raise the budget deficit and reduce public saving. As the Congressional Budget Office’ s annual Long-Term Budget Outlook makes clear, long-run increases in public saving require reducing the growth of federal spending.
In that regard, pursuing a fiscal path toward rebalancing requires well-known, if politically challenging, steps. While the administration’ s Department of Government Efficiency( DOGE) focuses on reductions in federal employment, serious long-term spending reductions must center on slowing the rate of growth of expenditures on Social Security and Medicare.
There are ways to accomplish these changes that strengthen aid to lower-income seniors, while reducing the program’ s
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If the Trump administration is serious about rebalancing the U. S. economy, it should build on the president’ s control of both houses of Congress to push changes with large long-run economic payoffs, despite short-term political challenges.
saving, it is the latter that requires adjustment. Simply put, the U. S. should reduce government budget deficits and put the federal debt-to-GDP ratio on a stable or even downward trajectory.
To be fair, Bessent has emphasized deficit reduction as an objective that is desirable on its own merits. And deficit reduction offers benefits in terms of the administration’ s economic realignment goals.
All else being equal, an increase in national saving that results from lower budget deficits puts downward pressure on real interest rates in global capital markets and the term premium on longer-term U. S. public debt. And, all else being equal, the U. S. current-account deficit also would decline, and, to the extent that fiscal consolidation is accomplished by a decline in federal spending, a rebalancing toward the private economy can be accomplished.
On the tax side, the Trump administration should take care to avoid new large generosity for more affluent seniors. For Social Security, a higher minimum benefit can be coupled with changes in benefit indexation to bring about a gradual reduction in spending growth. For Medicare, publicly funded premium support for basic coverage can provide a strong safety net with lower growth in costs.
If the Trump administration is serious about rebalancing the U. S. economy, it should build on the president’ s control of both houses of Congress to push changes with large long-run economic payoffs, despite short-term political challenges. That really would be putting America first. Talk of rebalancing that emphasizes tariffs at home and lectures abroad is unlikely to turn Trump’ s signature slogan,“ Make America Great Again,” into more than words on a baseball cap.
GLENN HUBBARD, Professor of Economics and Finance at Columbia University, is a former chairman of the U. S. Council of Economic Advisers under President George W. Bush. © Project Syndicate
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