THE U.S. DOLLAR
The U.S. dollar has reached its highest level in two years, driven by a rally following the recent election, which has raised expectations for tax cuts, immigration controls, and tariffs. This strengthening of the dollar has several implications: it makes foreign goods and international travel more affordable for U.S. consumers, as imported goods and services become less costly in the domestic market.
However, the downside is that U.S. exports become more expensive for foreign buyers, potentially reducing demand for American-made products. This could lead to a widening trade deficit, which may impact economic growth metrics.
U.S. DEBT AND UNFUNDED LIABILITIES
The U.S. national debt has recently surpassed $36 trillion, highlighting a growing financial challenge for the country. Compounding this issue are the two primary unfunded liabilities, Social Security and Medicare, which together exceed $75 trillion.
As the national debt continues to grow, so does the interest that must be paid, and at the current pace, this interest is poised to become the largest expense in the federal budget.
To address the mounting debt, the government can focus on two main strategies: increasing revenue through tax hikes and decreasing spending by cutting programs or implementing cost-saving measures.
TARIFFS
A tariff is a tax or duty imposed by a government on goods and services imported into or exported from a country, serving several purposes. Primarily, tariffs can generate revenue, especially for countries where import tariffs constitute a significant portion of government income.
They also protect domestic industries by making imported goods more expensive, thus encouraging consumers to purchase locally-produced items and shielding domestic markets from foreign competition.
Additionally, tariffs can be employed as a strategic tool in trade negotiations or disputes, encouraging other countries to lower their trade barriers.
However, in 2023, tariffs did not represent a significant source of government revenue in the United States, contributing only $80 billion.