By Glenn Hubbard, Project Syndicate | April 3, 2025
US Treasury Secretary Scott Bessent’s defense of President Donald Trump’s trade tariffs as a step toward “rebalancing” the US economy misses the point. While some economies, like China and Germany, need to increase domestic spending, the US needs to increase national saving.
NEW YORK – US President Donald Trump’s aggressive tariff policy has stimulated important debates over rebalancing the US economy at home and in the global economic order. In remarks before the Economic Club of New York on March 6, Treasury Secretary Scott Bessent offered a window on the Trump administration’s economic-policy approach to “rebalancing” and re-privatizing America’s economy. Bessent also observed, as has Trump, that the “detox period” as the economy reduces its dependence on federal spending may require short-term “pain” to deliver longer-term gain.
Exactly what is to be rebalanced is not entirely clear. The tax and regulatory policies being considered by the administration provide routes to increase investment in the United States by both domestic and foreign firms. But the resulting effects on the dollar’s exchange rate and the current account are not well aligned with the reduction in the US trade deficit that the administration seeks.
As US financial markets and domestic industry register pain from on-again, off-again tariffs, it is worth asking whether the goal of rebalancing is well served by Trump making trade policy his top priority. The short answer is no. For example, tariffs on aluminum and steel, key intermediate inputs in manufacturing, are unlikely to rebalance the US economy toward increased manufacturing. A better approach would emphasize long-needed changes in fiscal policy, though the political steps are more challenging than simply saying “rebalancing.”
The Trump administration’s “America First” objective envisions a global rebalancing of economic activity and production. In addition to US tariffs, considerable discussion in policymaking circles, within and outside the government, has centered on rebalancing abroad. In Europe, the prospect of German rearmament and other increases in domestic spending will reduce Germany’s chronic current-account surplus.
In Asia, China stands out for its pursuit of surpluses, for its often-predatory trading behavior (dumping the products of its excess industrial capacity onto world markets), and for intellectual property theft. An argument can be easily made that for its own economic well-being, China should increase its domestic spending, particularly consumption, rather than relying on export-led growth. And China recently announced plans to boost domestic consumption in response to US tariffs. If China avoids this realignment, its membership in the World Trade Organization system can and should be questioned.
But there is an important flip side of the plan to bring about a global economic realignment. While some economies, like China and Germany, need to increase domestic spending, the US needs to increase national saving. While national saving represents private saving (by households and corporations) and public saving, it is the latter that requires adjustment. Simply put, the US should reduce government budget deficits and put the federal debt-to-GDP ratio on a stable or even downward trajectory.
To be fair, Bessent has emphasized deficit reduction as an objective that is desirable on its own merits. And deficit reduction offers benefits in terms of the administration’s economic realignment goals.
All else being equal, an increase in national saving that results from lower budget deficits puts downward pressure on real interest rates in global capital markets and the term premium on longer-term US public debt. And, all else being equal, the US current-account deficit also would decline, and, to the extent that fiscal consolidation is accomplished by a decline in federal spending, a rebalancing toward the private economy can be accomplished.
On the tax side, the Trump administration should take care to avoid new large tax cuts that raise the budget deficit and reduce public saving. As the Congressional Budget Office’s annual Long-Term Budget Outlook makes clear, long-run increases in public saving require reducing the growth of federal spending.
In that regard, pursuing a fiscal path toward rebalancing requires well-known, if politically challenging, steps. While the administration’s Department of Government Efficiency (DOGE) focuses on reductions in federal employment, serious long-term spending reductions must center on slowing the rate of growth of expenditures on Social Security and Medicare.
There are ways to accomplish these changes that strengthen aid to lower-income seniors, while reducing the program’s generosity for more affluent seniors. For Social Security, a higher minimum benefit can be coupled with changes in benefit indexation to bring about a gradual reduction in spending growth. For Medicare, publicly funded premium support for basic coverage can provide a strong safety net with lower growth in costs.
If the Trump administration is serious about rebalancing the US economy, it should build on the president’s control of both houses of Congress to push changes with large long-run economic payoffs, despite short-term political challenges. That really would be putting America first. Talk of rebalancing that emphasizes tariffs at home and lectures abroad is unlikely to turn Trump’s signature slogan, “Make America Great Again,” into more than words on a baseball cap.
Glenn Hubbard, Professor of Economics and Finance at Columbia University, is a former chairman of the US Council of Economic Advisers under President George W. Bush.
Copyright Project Syndicate
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