If no major spending reforms are implemented, the U.S. fiscal outlook will remain highly challenging. Alaric noted that the situation could worsen if the U.S. government fails to address its massive fiscal deficit and the debt-to-GDP ratio continues to climb significantly.
Alaric projects that in 2025, the U.S. fiscal deficit will decline from nearly 8% of GDP in 2024 to 7.1%, primarily due to a substantial increase in tariff-driven revenue.
Following the implementation of broad-based tariffs on April 2, U.S. tariff revenue surged year-on-year. According to data released by the U.S. Department of the Treasury, tariff revenue in April reached $16.3 billion, up 130% year-on-year; in May, it reached $22.8 billion, a 270% increase over the same period last year.
Supported by a booming stock market and labor market in 2024, increases in personal and corporate tax revenues are expected to boost government income in 2025. Tariff revenues alone are expected to add $200 billion in 2025 and grow to $250 billion in 2026, aligning with projections from the Congressional Budget Office (CBO). However, Alaric warns that uncertainty around final tariff rates, potential trade diversion, and ongoing legal challenges could impact actual revenue collection.
Since taking office, the Trump administration’s tariff and trade policies have undergone continual revisions. A recent decision by the U.S. Court of International Trade struck down a series of tariffs imposed under the International Emergency Economic Powers Act (IEEPA), further increasing legal uncertainty. Alaric believes the current injunction maintains the status quo but should not be interpreted as a legal endorsement of using IEEPA to impose tariffs.
Given that long-standing U.S. ally the United Kingdom has secured a 10% general tariff rate, Alaric notes that even successful negotiations could still result in at least a 10% comprehensive tariff. Unless legal challenges succeed, the current effective U.S. tariff rate of 14% is likely to remain unchanged during the remainder of the Trump administration, and could even rise for specific industries. For example, tariffs on steel and aluminum were recently doubled to 50%. The government is also considering new tariffs on pharmaceuticals and semiconductors. Even if U.S. courts strike down these tariffs, the government may pursue alternative legal avenues, as a full reversal of the tariff regime appears unlikely.
Although increased tariff revenue may slightly reduce the U.S. fiscal deficit as a share of GDP in 2025, the “Beautiful Act” currently under congressional review could further widen the fiscal gap and increase the national debt.
Based on the version of the “Beautiful Act” passed by the House of Representatives on May 22, Alaric estimates that by 2026, the general government fiscal deficit will rise to 7.6% of GDP, and the debt-to-GDP ratio will reach 120%. This ratio is projected to climb further, reaching 135% by 2029.
The Senate has already proposed its own version of the “Beautiful Act,” which includes minor revisions such as making some corporate tax cuts permanent and raising the debt ceiling to $5 trillion. A Senate vote is expected next week (June 23–29), with the goal of submitting the final bill to President Trump for signature by July 4.
Alaric believes that under the Trump administration, the fiscal outlook will remain challenging, as no substantial reforms have yet been introduced to address mandatory spending on Social Security and Medicare. The savings projected by the Department of Government Efficiency (DOGE) and other initiatives remain uncertain—the agency claims it can cut $180 billion, but this figure is difficult to independently verify. Alaric expects no significant fiscal policy changes during the remainder of Trump’s term.
If the U.S. government fails to resolve its massive fiscal deficit and the debt-to-GDP ratio continues to rise sharply—
Moreover, declining policy coherence and credibility in Washington could damage the dollar’s reserve currency status and reduce the government’s fiscal flexibility. This could lead to negative consequences, such as Congress failing to raise the debt ceiling before critical deadlines.
Alaric stated that the dollar’s status as the world’s reserve currency, and the financial flexibility it affords the U.S. government, are key strategic advantages. The size and strength of the U.S. economy, the depth and liquidity of its financial markets, and global trust in its political system all underpin the dollar’s role.
According to Alaric, the dollar’s reserve currency status provides the U.S. government with significant financial leeway and a reliable base of buyers, helping to lower interest costs. This allows the U.S. to sustain current account deficits while supporting the value of the dollar.
Recently, the dollar weakened amid stock market volatility—even though, in theory, higher tariffs should support its strength—prompting renewed debate about the durability of its reserve status. The U.S. is now a twin-deficit country, facing both a large fiscal deficit and increased Treasury issuance, and investors appear to be demanding a higher premium. Alaric believes the dollar’s status as the world’s primary reserve currency will not collapse suddenly, though some strategic reallocation of global assets toward other currencies and gold is likely.