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I’ve been organizing President Trump’s main initiatives into what I call his “4 Buckets.” It’s a way to make sense of the big-picture agenda by breaking it down into key themes. Just to recap, the four buckets are:

• Raising tariffs on imports
• Deporting undocumented immigrants
• Tax reform (now known as the “Big Beautiful Bill” or BBB)
• DOGE efforts to cut waste, fraud and abuse in government spending

Since the inauguration back in January, there’s been movement on all four fronts. Today, I’m focusing on two: tariffs and the BBB, now that we have enough detail to consider their potential economic impact.

Tariff Turbulence

Tariff rates have been rising all over the place—delayed, adjusted, and then changed again. As of mid-May, the average tariff on Chinese imports is about 33.2%, and 11.0% on goods from the rest of the world.¹

If the current structure holds, here’s what we could expect:

• About $200 billion a year in additional tax revenue for the federal government over the next decade, before any foreign retaliation.²
• A 0.7% drop in annual GDP growth.³
• A 1.4% bump in consumer prices (inflation) in the short term.⁴

I’ve been speculating that raising tariffs would slow down economic growth and push inflation up—and now, more people seem to be reaching that same conclusion.

In previous commentaries, I’ve noted that two of President Trump’s “4 Buckets,” tariffs and deportation, could lead to economic friction. To be clear, this perspective looks strictly at economic outcomes. It doesn’t address broader goals like rebuilding U.S. manufacturing or reinforcing sovereignty—potential long-term impacts we’ll have to watch unfold.

The Big Beautiful Bill

As the BBB moves through Congress, much of the data is still preliminary. According to the Tax Foundation (as of May 23), this bill could increase GDP growth by 0.8% annually, while also adding about $170 billion per year to the federal deficit (on a dynamic basis).⁵

With so many variables still in play, it’s too early to dive into specifics. But the preliminary data suggests that the bill could support economic growth and ease inflationary pressures—though these potential gains would come at the cost of higher deficits and added strain on the Treasury bond market.

From a macro economic standpoint, both the tariff and tax initiatives currently appear to balance out in terms of GDP impact but may contribute to rising prices. The federal deficit is estimated to increase by around $100 billion annually under current conditions.

Based on what we know, short-term gains look limited—though one possible benefit may be avoiding a major tax hike at year-end if cuts aren’t extended. In short: this remains a work in progress.

Treasury Credit Rating Downgrade

Moody’s recently downgraded U.S. Treasury debt, joining Standard & Poor’s and Fitch in lowering the U.S. from its AAA perch. That leaves just ten foreign countries and two American companies, Microsoft and Johnson & Johnson,with a pristine credit rating. It’s notable that the maker of Band-Aids is currently seen as more creditworthy than the U.S. government.

Source: FactSet

As shown in the chart above, yields on the 10-year Treasury note have trended upward over the past five years — a sign of rising investor caution. A recent Barron’s article connected the dots between this credit downgrade and U.S. fiscal policy.

In that article, economists at Deutsche Bank noted that deficits remain high, with little effort to reduce them—potentially exceeding 6% of GDP in the coming years. Carl Weinberg, Chief Economist at High Frequency Economics, warned that such large deficits are unsustainable and could eventually trigger a market response if fiscal discipline isn’t restored.

While that hasn’t happened yet, there’s a growing view that without meaningful action, financial consequences may emerge down the road.

Sources:

^1,3,4Yale Budget Lab, State of U.S. Tariffs: May 12, 2025, https://budgetlab.yale.edu/research/state-us-tariffs-may-12-2025

²Tax Foundation, Trump Tariffs: Tracking the Economic Impact of the Trump Trade War, May 27, 2025, https://taxfoundation.org/research/all/federal/trump-tariffs-trade-war/

⁵Tax Foundation, “Big Beautiful Bill” House GOP Tax Plan: Preliminary Details and Analysis, May 23, 2025, https://taxfoundation.org/research/all/federal/big-beautiful-bill-house-gop-tax-plan/#main

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