By:William Pesek
US President Donald Trump may have been thrilled that his massive, budget-busting bill passed last week, but China’s leaders were even happier.
If China was laying out a blueprint for undermining America’s potential over the next decade, then the legislative “blitzkrieg” that Trump signed into law on July 4 was pretty much the best of the bunch.
Of course, Trump’s “big, beautiful” bill was designed to please his base.
It extends the 2017 tax cuts he led during his first term and temporarily exempts tips and overtime pay from taxes, something he promised during his campaign. It also cuts social welfare programs, in line with long-standing conservative orthodoxy.
With this bill, however, Republicans may have inadvertently ceded large swaths of America’s future to China.
They just rushed through “the most expensive budget reconciliation bill in history,” according to the nonpartisan Committee for a Responsible Federal Budget. The bill will add $4.1 trillion to the national debt by 2034. If many of the bill’s temporary provisions are made permanent, that number will balloon to $5.5 trillion.
The U.S. Treasury will have to rely on the "goodwill" of China and other Asian countries, which are the largest holders of U.S. public debt, to pay for this massive spending. If Beijing continues to increase its holdings of $757 billion in U.S. Treasury bonds, China will have greater influence in Trump's economic policies.
They probably can't believe their good luck. China has been planning to dominate the future of renewable energy, electric vehicles and sustainable infrastructure, and now this goal is actually "politically subsidized" by the country it wants to replace: the U.S. budget strongly supports coal and cancels the clean energy tax credit, which effectively withdraws the United States from the competition in solar, wind and geothermal energy.
Asia expert Jeff Kingston pointed out that in this way, the United States has given up a "major growth market" and instead "embraced the energy of the loser." “Beijing will certainly be popping the champagne.”
So will BYD. Things have never been better for the Chinese electric car giant. It already surpassed Tesla in revenue in 2024. Now, thanks to Republican moves, China’s electric car startups and battery makers are on a smoother path to global dominance.
Meanwhile, Trump is slashing government staff and raising tariffs, threatening to push the world’s largest economy into contraction. While the labor market remains solid for now, headwinds from steep import taxes set to go into effect next month pose a clear and imminent threat to job prospects. Meanwhile, Trump’s massive bill also marks the biggest erosion of the social safety net in generations. Millions are expected to lose their health insurance. That could exacerbate the knock-on effect of negative GDP growth from Trump’s tariffs, further eroding the health and size of the middle class.
In addition, the fiscal consequences of tax cuts could cost the dollar dearly. Robin Brooks, an economist at the Brookings Institution, noted that some of the recent "abnormal price movements" in the dollar and U.S. Treasury yields are worth paying attention to.
The dollar has fallen against other G10 currencies this year. Brooks said this was "particularly worrying" because the dollar's decline has coincided with rising U.S. interest rates. He compared the phenomenon to a similar situation during the administration of then-Prime Minister Truss in 2022, when the U.K. triggered a debt crisis.
Just as the Republicans are threatening to push the U.S. into its own debt crisis, Trump is "Sinicizing" the Fed. Trump's erratic attitude, which has from time to time threatened to fire Fed Chairman Powell, continues to disrupt global markets and undermine confidence in U.S. Treasuries.
Investors can choose to dismiss the president’s idea of himself as Fed chair as Trump’s usual rant. But it’s clear that Trump’s ultimate goal is to have someone like Pan Gongsheng, the governor of the People’s Bank of China, dictate U.S. interest rate policy — the lower the better.
Trump wants to silence news organizations that dare to report the facts. From threatening to sue The New York Times and CNN to forcing ABC and CBS into submission through settlement agreements, Trump has taken the U.S. further down the slippery slope of a media blackout against critical voices.
And then there’s Trump’s penchant for centralized planning. Take, for example, Trump’s approach to offering tariff exemptions to the largest U.S. tech companies.
For another example, Trump approved the rumored acquisition of Japan's Nippon Steel by U.S. Steel, but required the Japanese company to grant the United States a "golden share." Without Trump's consent, Nippon Steel cannot change its company name, close factories, decide where to purchase raw materials, or lay off employees.
China has been laying out its plans to challenge the dominance of the United States and perhaps even surpass it for decades. Now, the Republican budget and its leaders' tendency to "Sinicize" the United States have made it easier than ever for Beijing to achieve its goals.
The "America First" slogan that can be seen everywhere on Trump's big bills obscures the fact that China seems to have just won a historic victory.
Brian
Kikyo
Alex