Filenews 19 April 2025 - by Angelos Angelodimou
Trump won a second term in the U.S. presidency because he promised the citizens of America that from the first day of his election he would lower the prices of food and milk.
However, things are not turning out as most expected. Trump's first concerns after his election were... invade Greenland, make Canada the 51st U.S. State, take over the management of the Panama Canal, and change the name of the Gulf of Mexico to the Gulf of America.
The sequel was even more episodic. The US President decided to start a trade war with the whole planet (he even imposed tariffs on some islands inhabited only by penguins), but with China and Europe as his main target.
The $36.5 trillion debt.
But why is Trump burning with the tariffs? A large sign outside the Bank of America tower in New York constantly reminds passers-by how fast the country's public debt is growing. The "debt clock", as it is called, is fed daily with data from the Ministry of Finance.
Its last indication was 36.5 trillion or nearly 123 percent of GDP, more than double that of 2000 (59.2 percent) and more than three times that of 1980 (34.5 percent). The speed of debt growth after 2000 has been impressive, as federal budget spending has been much higher than revenues over all these years.
The most worrying thing is that the expenditure for the payment of interest exceeded 1 trillion dollars. In fact, in September 2024 there was a historic reversal, as for the first time the expenditure for servicing the US public debt exceeded the military expenditure of the US government.
Trump's goal and solutions
The President of the United States, therefore, wants to reduce the public debt, to be able to pay interest, to reduce the deficit in the trade balance, by boosting exports and reducing imports, to increase jobs by creating new production units within the United States and, of course, to fight high prices, as he promised during the election campaign.
So what solutions does Trump have? Let's see what are the various proposals and assessments that are recorded. First, in 2025, the U.S. government must refinance $9.2 trillion in maturing debt.
According to Treasury Secretary Scott Bessent, each drop in interest rates by one basis point, or 0.1 percent, saves the government about $1 billion a year.
Since the tariffs were announced on April 2, 10-year bond yields have fallen from 4.2% to 3.90% – a drop of 30 basis points. If that's the case, it translates to $30 billion in savings.
Then, by introducing sweeping tariffs, the government is creating exactly the kind of economic uncertainty that leads investors to safer assets, such as long-term US bonds. When markets are terrified, capital goes out of risk and equity assets (as we see with the stock market crash) and accumulates into safe assets, most notably the 10-year U.S. Treasury bond. This demand pushes yields lower.
The U.S. president says the goal of the tariffs is to reduce the U.S. trade deficit relative to other countries. One option of President Trump to reduce the deficit is a weak dollar in order to increase U.S. exports. The dollar is the most important reserve currency in the world and, in Donald Trump's view, its current strength is partly to blame for the U.S. trade deficit.
The impact
It is important to know that U.S. growth is largely based on consumption. And consumption is in turn based on good psychology. And the first samples are not positive at all.
Jerome Powell, President of the U.S. Federal Reserve, said surveys showed "a sharp decline in consumer and household sentiment about the economic outlook, mainly due to concerns about tariffs." Inevitably, this will lead to a reduction in consumption.
And inflation and recession?
Some analysts speak of a strengthening of inflationary pressures, as due to tariffs, prices are expected to rise in several products. There is also the estimate of a recession in the economy. Which of the two will happen? Or will the worst-case scenario occur, where both will be combined, with so-called stagflation?
Speaking to "F", economist Yiannis Telonis did not rule out the possibility of both scenarios happening. In other words, to strengthen inflation and at the same time to have a recession in the economy. As Mr. Telonis explained, tariffs increase the prices of products. This is due both to higher import costs and to the fact that there will not be enough production to meet demand.
However, in a second stage, the situation is likely to be reversed. The uncertain climate in the trade sector, which affects prices and by extension a large part of the economy, may lead to a decline in consumption, since market confidence will decrease.
And, as we have pointed out earlier, America relies heavily on consumption. This combination is equivalent to stagflation, i.e. inflationary trends prevail and at the same time there is no growth in the economy, a scenario that is undesirable for the United States.
What Trump seeks with the tariffs is to reduce imports, at the same time increase production within the United States and to boost exports to some extent.
On another level, Mr. Telonis continued, he wants to reduce the value of the dollar, so that the debt falls and he is able to continue servicing it. Besides, if the debt and the state budget are not put in order, in 2-3 years there will be a serious problem in the country.
However, the President's statements, his tactics, his decisions, which are then reversed, and the attacks on his former allies, create a chaotic backdrop and therefore instability, which neither the markets nor investors prefer. It's as if he shoots his own legs and whatever he achieves in the end turns against him.
The crisis of the 1930s
However, for historical reasons, it is worth mentioning that in the past there were attempts to impose tariffs by the United States, but without a positive result. During the Great Depression in the United States in the 1930s, then-President Herbert Clark Hoover took a series of measures to stem the slump in the markets and the recession in the economy.
Among other things, with the Smoot-Hawley Tariff Act of 1930, it increased tariffs on imports of agricultural and industrial products and led Europe and Japan to create protective measures against American products.
How is Cyprus affected by the storm?
In turn, economist Tasos Giasemidis, speaking to "F", said that Trump's imposition of tariffs aims to force companies that sell products in America to move their production units to the country and not to lower-cost jurisdictions.
In addition, it wants to boost American companies, production and employment, even offering tax breaks. But, especially for heavy industry products, given the geographical interconnectedness of production, it is very difficult to replace imports with domestic products in the US, at least in the short term. So, as an immediate development, price increases and inflationary pressures in America are expected.
With regard to Cyprus, Mr. Giasemides points out that economic instability and volatility will lead to a postponement of investments, which will also affect our country as an exogenous economy. At the same time, negative developments in the course of the European economy will limit the disposable income of citizens, who are likely to limit travel and other habits. Cyprus' exports may be limited as far as the United States is concerned, but vigilance is required in order to assess the external environment and ensure the import of new products, with our country being part of new agreements.
