US' record-breaking $40 trillion national debt raises global concern

Steady increase

The US national debt has slowly increased over the past 50 years during presidential administrations led by both Republicans and Democrats. It rises when the federal government runs a budget deficit and spends more money than it collects in tax revenue.

The US has faced a series of challenges in the past few years that have strained the federal budget.

In 2009, amid the recession, debt climbed. It rose again in 2020 during the COVID-19 pandemic, which shut businesses, hampering economic growth. A 2020 study by Harvard economists David Cutler and Lawrence Summers estimated that the cumulative financial costs of the pandemic were more than $16 trillion, or 90 percent of the annual GDP of the US.

Trump enacted pandemic initiatives in his first term. Former president Joe Biden also spent to stabilize the economy and spur an economic recovery.

But an analysis from the Organisation for Economic Co-operation and Development by The AP described the US as having the worst fiscal position among developed economies. "There are only two ways to trim the national debt. One is to raise tax; the other is to trim the budget. Neither one is pain-free," Chow said.

Under the last two presidents — Trump and Biden — the debt has risen further.

In 2016, Trump vowed to eliminate the national debt within eight years with trade deals and other stimulants of economic growth. But 10 years later, the national debt has doubled.

In another effort to trim government spending at the beginning of his second term in office, Trump established the Department of Government Efficiency led initially by the world's richest man Elon Musk.

DOGE aimed to reduce federal spending by $1 trillion. It reported saving around $200 billion, but the Government Accountability Office reported that as of July 7, this figure may have been overstated.

If the debt is not addressed, investors could seek higher interest rates for US bonds, The New York Times reported. It may even raise questions about the nation's creditworthiness.

Lawmakers in the House Freedom Caucus have pushed for tighter budgets over a number of years. "We could make modest cuts and tweaks to some programs like Social Security and otherwise show we are taking the budget problem seriously over time," Ball, the Quinnipiac economist, said.

The Trump administration pledged to use the revenue from the sweeping tariffs on imports to create a fund that it said would help lower the deficit.

But in February, the Supreme Court ruled that the International Emergency Economic Powers Act of 1977 did not allow the president to enact tariffs.

This led to a US court of international trade ruling that the federal government would potentially have to refund more than $160 billion to companies who paid the import duties.

Gary C. Hufbauer, an expert on international trade and non-resident Senior Fellow at the Peterson Institute for International Economics, told China Daily that for most firms, timely refunds were "essential".

"The data we have collected indicates that, at least through early 2026, companies absorbed most of the tariffs. Tariffs averaged around 15 percent of import value, with a wide dispersion between high and low tariffs. But even absorbing a 10 percent tariff makes a big adverse impact on most firms, since their profit margins are typically under 10."