U.S. President Donald Trump's proposal for a record $4.7 trillion budget, pushing the federal deficit to $1.1 trillion, could spark criticism that his administration will trigger problems for the world economy with its self-centered, unregulated management of the budget.
Documents that the Trump government has released show the basic principles behind the compilation of the federal budget for the 2020 fiscal year that begins in October. The United States is expected to suffer a deficit of over $1 trillion for four consecutive years until fiscal 2022.
This will be the first time that the United States has suffered such a massive federal budget deficit since the collapse of U.S. major investment bank Lehman Brothers in 2008. It is an extremely rare situation in which fiscal conditions are worsening even though the country's economy is expanding.
This state of affairs is attributable to the Trump administration's "America First" policy fixation. The growth of the federal government's revenue remains sluggish because of drastic tax cuts carried out on the initiative of the president. The total amount of the country's outlay is snowballing because the government is increasing defense spending and funds for building a wall along the border with Mexico, while cutting back on overseas assistance.
There is a chance the U.S. budget deficit will grow further. The Trump government estimates that the country will achieve a budget surplus 15 years from now as it expects that the country will enjoy high economic growth because of the tax cuts and that the country's tax revenue will increase as a result.
However, many economists forecast that the growth rate will actually be lower than the government predicts because the effects of the tax cuts will decrease. This is likely the more realistic view.
If concerns over the U.S.'s fiscal state were to grow, it could cause the market prices of U.S. federal government bonds to plummet and sharply increase interest rates, upsetting not only the U.S. economy but the world economy as a whole. This is because the governments of Japan and other countries as well as financial institutions possess massive amounts of creditworthy U.S. government bonds.
The Trump administration has waged a trade war with China and worsened the Chinese economy, which has adversely affected the world economy and consequently raised fears that Japan's economy will slow down. As a superpower, the United States is responsible for the stability of the world economy. The country must stop its runaway budget deficit.
Attention is now focused on how Congress, which has the authority to approve the budget, will respond to Trump's proposal.
Congress has set an upper limit on the country's outstanding debts, which comprise the accumulated budget deficit. These debts have increased under the Trump administration, hitting a record $22 trillion. Since calls for an expansion of spending persist within Congress, the federal legislature has repeatedly frozen the upper limit as an exceptional measure.
However, the period of freezing the upper limit ended this month, making it impossible to increase federal debts any further. If Washington faces funding difficulties, it could cause confusion to the world economy, sparking calls to raise the upper limit.
Congress should instead work to restore the federal government's fiscal health. Even if the upper limit on debts were to be eased, the United States would face the same problem as long as it continues its reckless public spending binge. Congress should also be aware of the responsibility of the U.S. as a superpower.