Editor’s note: The views expressed in this column are solely those of the author.
The Trump Administration’s America First program is a nationalist, political and governing strategy that focuses on reshoring industrial capacity, reducing trade deficits and prioritizing domestic production through tariffs, tax and strategic trade policies.
The Trump tariff program was supposed to supply the needed revenue for these programs. Trump's goal was for tariffs to generate immediate federal revenue while also penalizing offshore supply chains. By making foreign production more expensive, the government would create an artificial incentive to reshore production without having to subsidize domestic companies.
But the Supreme Court ruled the administration's sweeping tariff authority under the International Emergency Economic Powers Act (IEEPA) was illegal. U.S. tariff revenue had dropped from monthly highs of $27 billion to $30 billion before the Supreme Court's February 2026 decision, then fell into negative net revenue in mid-2026 as massive refunds outpaced new collections. The census data shows that, as of May 2026, the reshoring boom has not materialized, and American corporations are demanding subsidies and tax credits before they will reshore production.
In February 2026, Trump started a war against Iran, and the war has cost $43.6 billion as of early September 2026, with no end in sight. Because the federal government is operating under a budget deficit and has not passed a dedicated revenue source or offset to cover the conflict, the military expenses for the war in Iran are effectively being financed through more deficit spending.
So, the question is: How are we going to pay for all of this?
America is in a debt crisis
J.P. Morgan warns that the $40 trillion national debt and the $1 trillion in interest on the debt are pushing economic stability to the edge. The debt crisis is not down the road— it is here.
According to the Federal Reserve Bank of St. Louis, the U.S. debt-to-GDP ratio was 120% at the end of 2025. This compares what a country owes with what it produces and indicates the country’s ability to repay its debt. A World Bank study found that countries whose debt-to-GDP ratio exceeds 77% for prolonged periods experience significant slowdowns in economic growth. The U.S. debt-to-GDP ratio has been above 77% continuously since 2009. The higher the debt-to-GDP ratio climbs, the higher the risk of default. The U.S. is now the world's largest debtor nation, sinking slowly into deeper debt, and I wonder why more people are not concerned.
Legendary billionaire investor Ray Dalio, the founder of Bridgewater Associates, one of the world's largest hedge funds, has issued a stark warning about the future of the United States, stating he is not optimistic about the nation’s trajectory and believes “we’re heading into very, very dark times.” He says, “The U.S. has a significant debt problem, and its internal political landscape is dangerously polarized by wealth and values gaps, putting democracy itself at risk.“
In addition, the U.S. international debt is also growing at an alarming rate. According to the Bureau of Economic Analysis, our international debt, called the Net International Investment Position (NIIP), is the debt we owe to foreigners and reached a negative $16.1 trillion at the end of 2022. This is equivalent to 69% of our GDP. Our NIIP grows as we continue to run the world’s largest current account trade deficit each year.
I think the economy is at a dangerous inflection point. The nation is spending 40% more than it is taking in, and America is slowly going broke. Ignoring the problem and relying on deficit spending will only postpone the economic engine going off the tracks in the future.
The danger of interest on the debt
As a 2025 ADVFN report details, U.S. net interest payments reached $1.25 trillion, consuming about 18.5% of all federal revenue. Based on projections by the Congressional Budget Office and fiscal watchdogs, net interest payments are expected to consume roughly 28% to 30% of total federal revenue by the year 2040. It could trigger a profound structural shift in the U.S. economy, severely limiting fiscal flexibility and depressing long-term economic growth. Essentially, for every $3 the government collects from taxpayers, nearly $1 would go strictly toward servicing existing debt rather than funding public services, entitlements or defense.
A squeezed economy
A massive portion of federal revenues will be redirected to interest payments. To pay its interest bills, the government must continuously issue more debt. This massive demand for capital absorbs a significant portion of available domestic and global savings. Monetizing the debt means the central bank (Federal Reserve) prints new money to buy government bonds, directly funding the government's deficit rather than selling those bonds to independent private investors. This cycle risks a gradual erosion of trust in the U.S. dollar, potentially raising inflation risks when the Federal Reserve is forced to monetize the debt.
In February 2026, the Congressional Budget Office warned in its 10-year budget outlook that federal deficits and debt will worsen significantly over the coming decade.
Key projections are:
- Debt held by the public will climb from 101% of GDP in 2026 to 120% by 2036.
- Debt will surpass the historic World War II record of 106% of GDP around 2030.
- The annual deficit is projected to grow from $1.9 trillion in 2026 to $3.1 trillion by 2036.
- Cumulative deficits are projected to reach roughly $24 trillion over the decade.
What this means for manufacturing
The growing national debt will limit the amount of capital available to Trump’s America First programs. Large-scale manufacturing investments require long-term stability, but federal debt and rising interest create uncertainty for businesses. The inconvenient truth is that deficits are a significant headwind that will undermine manufacturing reshoring and prosperity.
American corporations want subsidies and tax credits before they will reshore production, but a financial and economic limit exists on how many subsidies the nation can afford. Subsidizing every industry that wants subsidies would require hundreds of billions, if not trillions, and could trigger severe inflation. With the U.S. national debt now exceeding $40 trillion and annual budget deficits tracking past $1.9 trillion, the federal government lacks the fiscal capacity to subsidize every sector.
The Trump administration is not opposed to subsidies as long as they are not clean energy tax credits; Trump prefers to use the "stick" of aggressive tariffs to force companies to reshore rather than relying entirely on the "carrot" of expensive federal subsidies—but the tariff program is not working very well since the Supreme Court ruling against tariffs.
We must get our financial house in order
If we want to shift the economy from consumption to production, reshore production and give hope to the middle class, we have to face our financial problems. We need to stabilize debt and keep the national debt from growing faster than the economy, ideally bringing it down to a more sustainable level. Lawmakers will have to confront this reality long before 2040.
Reducing national debt interest requires a combination of cutting spending, increasing revenue (taxes) and achieving strong economic growth, which lowers the debt-to-GDP ratio. The trick is to balance these actions carefully to avoid stifling economic growth while putting the nation on a sustainable fiscal path.
We are faced with four solutions:
- Economic Growth: I think the idea of relying on economic growth to shrink the debt-to-GDP ratio is an illusion. According to the Congressional Budget Office, after a brief cyclical increase to 2.4% in 2026, U.S. real GDP growth is projected to slow to an annual average of 1.8% through 2036. This is far below what is needed to offset compounding interest on massive existing debt.
- Severe Spending Reductions: Social Security, Medicare, Medicaid and Defense comprise 60% to 70% of federal spending. Reforming these programs is necessary for fiscal health, including gradually increasing the full retirement age for Social Security and Medicare eligibility; allowing Medicare to negotiate drug prices and adjust provider payments (modifying the reimbursement rates Medicare pays to doctors, hospitals, clinics and other healthcare providers for the services they deliver); and reducing or freezing defense and non-defense discretionary programs to below the rate of inflation.
- Aggressive Tax Increases: Broad-based tax hikes on corporations, capital gains and high-income earners will also become mathematically necessary. Some economists advocate for reducing federal income or corporate taxes and implementing a Value-Added Tax (VAT) or a border-adjusted tax to discourage reliance on imports and incentivize domestic savings. It would also require terminating the Tax Cuts and Jobs Act, which would restore prior tax rates and generate trillions in federal revenue over the coming decade. Trump’s Tariffs were designed to increase federal revenue, and the administration collected roughly $166 billion in revenue from the sweeping import tariffs imposed under the IEEPA. But massive court-ordered refunds have largely wiped out or negated net collections. In June 2026, net customs revenue dropped into a sharp deficit of $25.6 billion as massive refund payouts peaked at roughly $122 billion. Future revenue from Trump's tariffs will not come close to eliminating or significantly closing the federal deficit, according to budget data and CBO analyses.
- Ignore the Problem: Resolving a deficit requires two highly unpopular actions: raising taxes or cutting spending, but Republicans are against tax increases, and Democrats are against reducing entitlements. All lawmakers fear raising taxes or cutting spending because they know voters will backlash and they may not be reelected.
So far, politicians are not prepared to accept austerity and prefer to stick with deficit spending. Because the U.S. dollar is the world's primary reserve currency, the government can keep issuing debt without immediately triggering a catastrophic collapse. This lets lawmakers kick the problem down the road to future legislative sessions.
The question is: What will it take to get lawmakers to act on the debt crisis? Many people believe that Congress will do nothing until the economic engine goes off the cliff, as it did in 1929.
Conclusion
JPMorgan Chase CEO Jamie Dimon explicitly stated that politicians prefer to wait for a severe market crisis rather than act early on the national debt. While discussing the rapidly escalating $40 trillion U.S. national debt and its $1 trillion annual interest payments, Dimon noted that Washington operates on "crisis politics" rather than proactive governance.
Dimon has repeatedly used the analogy that the U.S. economy is driving toward a fiscal cliff at 60 miles an hour. He has noted that because policymakers continually fail to act early, the government has essentially bypassed the opportunity for a smooth transition and is left with zero choice but to rely on crisis management once the markets force their hand.
We are on the horns of a dilemma, and America seems to be frozen in the headlights and burdened by indecision. I don’t know the solutions, but I know from the Great Depression that waiting until a crisis happens leads to an expanding federal deficit and massive pain for everyone.
Am I overreacting to this crisis? Am I overlooking a solution? Will Congress get together and develop a bipartisan plan to prevent the economy from going off the cliff? Or will we keep printing money and ignoring the crisis until interest consumes so much federal revenue that we have to act?
What do you think?
Michael Collins wrote a new book, "The Globalization Trap," available on Amazon. You can reach him at [email protected] or on mpcmgt.net.
