Trump's risky playbook

Imagine a large country where national debt has grown from around 100 per cent of gross domestic product (GDP) in 2020 to 125 per cent of GDP in 2024.

- Devangshu Datta

The budget deficit averages around 6 per cent per annum, and a new government plans to cut taxes in 2025, which will probably lead to acceleration in the growth rate of the debt-to-GDP ratio.

The government intends to impose massive Customs duties on many goods. It's possible trade partners will retaliate with counter-duties, triggering a trade war. All this will lead to inflation. The nation in question already has a large trade deficit, and importers will pass these imposts on to consumers. Any manufacturer who gets into import substitution would also markup goods to keep a fat margin.

The government also intends to forcibly cut the workforce by around 5 per cent. That 5 per cent contributes a fair amount in taxes and generates 6-7 per cent of GDP, with critical inputs for the agro and food processing industries. Moreover, there is near full employment, so there aren't substitutes to pick up jobs that will become vacant.

Further, the government plans to tighten visa regulations that allow the induction of highly-skilled workers from overseas. This will impact the high-tech segments of the economy and research & development (R&D) across Stem-oriented industries.