President Trump has completed 100 days in office, but his approval rating has dropped to its lowest in 80 years. Meanwhile, the US national debt has surpassed $36 trillion, with the risk of a debt crisis increasing. A report released on the 28th by the Chongyang Institute for Financial Studies, Renmin University of China, warns that US sovereign credit is heading towards an evident crisis, and US debt might already exhibit characteristics of a "Ponzi scheme," with 2025 potentially being the "year zero" of a US debt collapse.
The report notes that during Trump's second term, his administration implemented a series of policies affecting the global economy, particularly "reciprocal tariffs" and extreme fiscal austerity measures. These policies have led to a significant increase in the US's one-year inflation expectations to 4.3%, the highest level in nearly two years, while the consumer confidence index has dropped to 67.8, an 11.8% decrease from last year. Furthermore, Trump's tax policies are projected to increase the US's basic deficit by $5.8 trillion over the next decade. If tax cuts are extended and federal aid programs are cut, the lowest 20% income Americans will face an average net loss of $1,125 a year, while the top 1% will gain a net $43,500 annually.
According to Liu Ying, a researcher at the Chongyang Institute for Financial Studies, since the Debt Act passed in 2017, US debt has experienced "cliff-like" growth: it surged from $10 trillion to $20 trillion in just nine years, reached $30 trillion in five years, and recently surpassed the $36 trillion mark in just two years. The report warns that if Trump continues his current policies, the US debt scale could exceed $40 trillion in the near future.
After Trump announced a tariff increase on April 2, the three major US stock indexes fell by more than 16%, with the NASDAQ plummeting 21%, indicating a market reaction signifying a shift from the "Trump trade" to the "Trump downturn."
The report specifically points out that the size of US debt has reached 123% of GDP, far exceeding the internationally recognized 60% warning line. The interest paid by the US annually has already exceeded $1 trillion, even surpassing the defense budget. According to predictions, by 2050, the US debt ratio could reach 166%. These indicators all suggest that the national credit of the US is facing an evident crisis.
Former head of the economic policy office in London, John Ross, noted that after Trump announced the tariff increase, the dollar index plunged by 5.7% to 98.3, breaching the lower limit of the three-year trading range, which forced Trump to halt the tariff increase on 90% of countries within days, retaining tariffs only on some Chinese products. Ross stated that this "tactical retreat" showed that Trump's policies posed a threat to the stability of global financial markets.
The report also believes that the Trump administration's policies have severely damaged the US credit system, causing simultaneous shocks to the US stock, bond, and foreign exchange markets, signaling the opening act of a "Trump collapse." According to multiple predictions, there is a more than 50% possibility that the US will face a recession by 2025.
In the global economic landscape, the trend of de-dollarization is becoming increasingly apparent. Central banks around the world continue to reduce their holdings of US debt, with the proportion of dollars in global official foreign exchange reserves dropping to 57.4% in the third quarter of 2024, a 30-year low. Meanwhile, the rise of the renminbi, gold, and emerging currencies, along with BRICS countries exploring resource-backed currencies, and over 130 countries advancing central bank digital currencies, are accelerating the reconstruction of the cross-border settlement system.
The report concludes by suggesting that China should strengthen the construction of financial firewalls, establish a monitoring and early warning mechanism, promote a reduction in global dependence on the dollar, optimize the structure of foreign reserves, enhance domestic consumption capacity, accelerate the regionalization of industrial chains, increase the renminbi's share in the settlement of commodity trade, and actively lead global cooperation and win-win strategies to overcome the US debt trap.
