In this edition of the Economic Brief, we touch on the three d’s: deficits, duties and debts. We will see how government spending continues to the rise in the US, despite a burgeoning deficit; what the impact of Trump’s customs duties is on global trade; and how debt levels are developing globally. Let’s dive in.
Federal government spending still rising
Sources: Accuracy, US Treasury
US federal spending continues to rise, and its deficit is reaching monumental levels. Despite the frenetic activity of the Department for Government Efficiency, spending reached $603 billion in February 2025, some $40 billion or 7% higher than the same month last year. Though certain departments were able to make cuts (e.g. $6 billion for education, $300 million for USAID), they were far outweighed by rises elsewhere: plus $5 billion year-on-year in health, plus $8 billion in Medicare, plus $10 billion in debt servicing, and the list goes on. Struggling to tame the government’s outgoings, is this perhaps one of the reasons why Trump is raising tariffs, essentially to increase income?
Growth: a strong impact in America, more limited in Europe
Sources: Accuracy, OECD
Let’s examine these customs duties now. The OECD has assessed a scenario where the US raises tariffs by 10% for all countries, which in turn take countermeasures of the same magnitude. Ultimately, according to the OECD, this would result in a 2% decline in global trade in the two years following the year of tariff implementation. The impact on global growth in each of these two years would be -0.3 points, while overall inflation would rise by 0.4 points each year too. It is worth noting that the worst impacts would be felt in North America, with households bearing the brunt of the tariff effects: over three years, real household income in the US would fall by 1.25%, equating to a $1,600 decline in disposable income. Investment would also suffer, dropping by -2% in the US (for comparison, the eurozone’s investment would fall by -0.6%). Of course, there would be an initial boost to public finances thanks to the significant cash inflows generated by the customs duties, estimated at 1.2% of GDP for the US. However, such a boon would be more than offset by the deteriorated macroeconomic environment. For the White House to maintain a stable deficit, it would need to further cut spending or raise taxes.
A high level of global bond debt
Sources: Accuracy, OECD
Let’s move on to debt. How can these deficits be financed, not to mention the investments necessary for defence, the digital transition, the environmental transition, and more? According to the OECD, the global stock of debt has reached $100 trillion, of which $55 trillion is sovereign debt. The debt burden of states continues to rise, with the ratio of debt to GDP reaching around 85% in 2025 for OECD countries compared with 75% in 2019. However, the organisation also notes that over 50% of sovereign debt for OECD members, 30% of sovereign debt for emerging countries, 63% of investment grade corporate bonds and 74% of speculative corporate bonds generate interest charges below the market average rate. Somewhat alarmingly, it identifies that 45% of the sovereign debt of OECD member states is due to mature in 2027. Refinancing will therefore be costly, further increasing the burden on national budgets. And with Trump threatening not to repay the US government bonds held by China, who would be willing to take on that risk?