The U.S. economy remains the envy of the world in many respects, at least in President Donald Trump’s telling. But its lofty position is threatened by, among other things, America’s own chronic inability to keep a balanced budget, and the administration’s trade policy is part of what’s holding it back from doing so.
Strong economic growth, rising productivity, and a labor market that has proved adaptable and resilient combine to paint a rosy picture of the U.S. economy, according to Kristalina Georgieva, the IMF’s managing director.
The deteriorating state of the country’s fiscal balance threatens to extinguish the benefits of America’s strong economy. Under current policies, general government debt—the measure of how much more the country is spending than taking in—could hit 140% of GDP in the next five years, according to the IMF, possibly more than $50 trillion. The agency noted a troubling paradox in recent policy shifts. While tax and spending changes legislated mostly through the Trump administration’s One Big Beautiful Bill Act last year are expected to modestly boost economic activity this year and next, they’ll be overshadowed by increased spending and lower tax revenue that continue to push federal debt higher.
Trump has framed his tariffs as a key measure to bring in more revenue and reduce the deficit, but Georgieva implicitly pushed back against that narrative. She called U.S. tariffs a “headwind to even stronger growth” that dragged down productivity. In the story of a strong U.S. economy, “we could have seen more of the good news” without the penalizing effect of tariffs, she said.
Right now, “the U.S. is in a position to fund its spending,” Georgieva said. “This is also good for the world as a whole because a U.S. that grows, has high productivity, grows rapidly, and has the ability to create more opportunities for others, has a positive spillover effect for the rest of the world.
“This being said, please be careful. Look at the deficit and debt levels. Bring them down,” she added.
But getting there won’t be easy. The IMF calculated the deficit to be 5.9% of GDP last year, and argued that lowering it to that target would require significant spending cuts and increases in government revenues. Much of the IMF’s policy prescription went against the Trump administration’s stated agenda of sweeping tariffs and reduced immigration flows. The agency recommended replacing tariffs with a destination-based consumption tax similar to VAT—a type of tax borne by consumers that tends to have a neutral impact on trade; a significant restructuring of expensive programs including Medicare and Social Security; and implementing a skills-based immigration system to keep the labor market competitive.
As difficult as those changes might be, for this administration or any other, chipping away at the deficit will only become more difficult as time goes on, Georgieva said, adding that the ideal moment would be now, while the economy is still humming along relatively strongly.
“The U.S. economy continues to deliver an impressive performance,” she said. “This good news provides an important opportunity for the administration to address the long-standing fiscal imbalance.”
