Notes | President Trump's Address to Congress

Introducing Datum Research Commentary, Notes will comprise short annotations of current events, topical developments, and important themes.

5 MAR 2025

EDWARD VON DER SCHMIDT

President Trump outlined a decidedly transactional posture toward foreign policy and trade in particular. The appearance of American dominance and economic reciprocity in bilateral relations (or lack thereof) will greatly influence what policies are actually effected and for how long. The administration's lever of choice? Tariffs. Willing to accept first order setbacks in the short-run, Trump explicitly framed the threat and implementation of tariffs as a means to compel desirable actions or concessions from other sovereigns and institutions. Given Trump's affinity for President McKinley, who prioritized American territorial expansion and protectionist trade policy, expect tariffs (and jingoism) to remain a feature - not a fad.

The domestic impact of tariffs garnered less attention. Posited as a means of raising significant revenue, the possibility that protectionist measures (such as tariffs and quotas) may actually reduce customs revenues and economic activity was not discussed. Instead, the president highlighted anecdotes concerning commitments to American investment. Nevertheless, President Trump acknowledged the likelihood of short-term pain: "There may be a little disturbance, but we're okay with that. It won't be much."

The bloc and countries mentioned explicitly in this context? The European Union, China, Brazil, India, Mexico, Canada, and South Korea. The proposed date for fully reciprocal tariff orders? April 2. Confrontation will be direct: "whatever they tax us, we will tax them". The president added that such actions would be extended to non-monetary barriers as well. He referenced copper, aluminum, and steel in particular, and he alluded to near-term pain for farmers and agricultural producers in a tacit acknowledgment of likely retaliation from trading counterparts abroad.

President Trump asserted that broad-based tariffs and recoveries from purported "fraud, waste, and theft" would help to address inflation (in addition to uncapped energy production) as well as the burgeoning national debt. At the same time, he proposed a bevy of permanent tax cuts. He added that he would support removing taxes on tips, overtime, and social security benefits and even advocated for the ability to deduct auto loan payments for American-made vehicles. This along with a pledge to cut taxes on domestic manufacturing reinforced his impetus to incentivize American investment and production by various means.

While such tax measures will need to be passed by Congress (notwithstanding the administration's contentions regarding the primacy of the executive), the question remains how to pay for them if a balanced budget is truly a goal. It would appear that entitlement programs like Social Security are firmly in the crosshairs. Still, the president nodded toward interest rates - bond markets are unforgiving in the face of fiscal profligacy. Rhetoric does not raise revenue on its own.

Much of the address concentrated on social issues, immigration, and government "efficiency" measures. The economic consequences of a diminished labor population or the reduction in direct expenditure and associated multipliers did not appear to merit consideration. Instead, hypothetical cost savings and an anticipated boost from large-scale deregulation (a source of business confidence) would "unshackle" the economy.

With Trump championing "safety, common sense, and wealth" and repeatedly citing his mandate to execute his campaign vision, the thrust of future policy initiatives will be unapologetic and should not come as a surprise. Tariffs, deregulation, antagonistic negotiation, protectionism, a gutting of the federal government, and a retreat from the global order are all in the cards. Tax cuts, larger deficits, and entitlement reductions are on the horizon - along with the possibility of stagnant growth and a resumption of inflation. Even as President Trump has made his preferences and priorities clear, uncertainty about the economy and the nation's trajectory has grown.