The president errs on the budget and trade deficits.
Analysis by Glenn Kessler
In virtual remarks to the annual meeting of the World Economic Forum in Davos, Switzerland, President Donald Trump on Thursday spouted many false or misleading economic claims. Here’s a quick rundown.
“Because of [Biden’s] ruinous policies, total government spending this year is $1.5 trillion higher than was projected to occur when I left office just four years ago.”
This requires context. The Congressional Budget Office in 2021 projected federal spending would be $5.5 trillion in fiscal year 2025 — and now estimates it will be $7 trillion. But such projections are difficult five years in the future. For instance, under Trump, spending in fiscal year 2021 turned out to be $2 trillion higher than originally projected in 2017.
Most of the additional spending under Biden was mandatory — such as Social Security payments that adjust for inflation — and is not subject to annual appropriations by Congress.
“Likewise, the cost of servicing the debt is more than 230 percent higher than was projected in 2020.”
This requires context. The CBO in 2020 projected net interest payments of $325 billion in 2025, while they’re now estimated to be $881 billion. That’s an increase of 170 percent, higher than Trump’s figure. When the estimate was made, in January 2020, the covid pandemic that devastated government finances was just beginning.
Interest payments are made on the national debt issued by the United States. According to the Committee for a Responsible Federal Budget, Biden and Trump roughly mirrored each other in the amount of new debt they issued to the public in their respective terms.
“The inflation rate we are inheriting remains 50 percent higher than the historic target.”
Trump sidesteps that inflation has fallen significantly. The Federal Reserve sets a target of 2 percent for inflation and the consumer price index was 2.9 percent in December. That appears to be the source of Trump’s 50-percent claim. Complicating matters, the Fed relies on a different inflation gauge, Personal Consumption Expenditures, which in its last report rose 2.4 percent. But analysts now regard the inflation rate as stable.
“It was the highest inflation, probably in the history of our country.”
False. Inflation peaked at 9 percent in June 2022, while annual inflation was 7 percent in 2021, 6.5 percent in 2022 and 3.4 percent in 2023. This was not the highest in U.S. history. In Trump’s adulthood, inflation was 9 percent in 1978, 13.3 percent in 1979, 12.5 percent in 1980 and 8.9 percent in 1981 — and also 8.7 percent in 1973 and 12.3 percent in 1974. Inflation was 18.1 percent in 1946, the year Trump was born. Other periods in U.S. history had even higher inflation rates.
“We have, you know, hundreds of billions of dollars of deficits with the E.U. and nobody's happy with it.”
This is exaggerated. The U.S. goods trade deficit with the European Union was a little over $200 billion in 2022 and 2023, but it is on track to be higher in 2024, according to the Census Bureau. However, the United States has a surplus in trade in services, which reduces the overall figure below $200 billion. Trump tends to ignore trade in services.
“Canada has been very tough to deal with over the years, and it’s not fair that we should have a $200 billion or $250 billion deficit.”
This is exaggerated. The trade in goods deficit with Canada has consistently hovered between $50 billion and $70 billion per year, according to the Census Bureau. Trump in his remarks disparaged Canada, saying that “we don’t need their lumber” and “we don’t need their oil and gas.” The United States is on track to be a net exporter of lumber by 2027 and Canada’s lumber imports to the U.S. have fallen in recent years because of increased duties. The United States is a net exporter of petroleum, but Canada supplies above half of imported oil, far outpacing Mexico and Persian Gulf nations.
“We’ve been having massive deficits with China. Biden allowed it to get out of hand. He’s $1.1 trillion deficits.”
This is highly exaggerated. China has a trade surplus of $1.1 trillion with the entire world, but the U.S. in the first 11 months of 2024 had a goods deficit with China of $270 billion, according to the Census Bureau. That is a decrease from $350 billion in 2021 and $382 billion in 2022, but the full-year figure will likely exceed $279 billion in 2023 — the lowest since 2010. Under Trump, the goods trade deficit with China was $375 billion in 2017, $418 billion in 2018, $342 billion in 2019 and $308 billion in 2020 — when trade fell because of the pandemic.
“I'm also going to ask all NATO nations to increase defense spending to 5 percent of GDP [gross domestic product] which is what it should have been years ago.”
The math would be costly for the United States. According to NATO, the United States in 2024 spent 3.38 percent of its GDP on defense. That was higher than any NATO country but Estonia (3.43 percent) and Poland (4.12 percent). Using percentage of gross domestic product is an imperfect measure because it penalizes countries with a large, strong economy like the United States. (The CIA says the U.S. ranks only 25th in the world in military spending under this measure.) The United States would need to boost defense spending to $1.4 trillion to reach 5 percent of the current U.S. economy, an increase of $460 billion per year. That’s almost a 50 percent boost.
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