Corporate Earnings Insights During Trade Policy Changes

Sean Gross, CFP®, AIF®

Co-Founder & CEO

July 30, 2025

Corporate earnings reports typically offer valuable insights into business performance, but this earnings season holds particular significance given ongoing trade policy developments. Despite reaching record highs in major stock indices amid stabilizing trade relations, questions remain about how tariffs may impact both consumers and businesses. Encouragingly, new trade agreements continue to emerge while companies report results that surpass analyst projections.

Recent data indicates that consumer spending patterns remain robust and corporate profit growth keeps outpacing forecasts. The Yale Budget Lab reports that consumers currently face an average effective tariff rate of 20.2% as of July 23, marking the highest level recorded since 1911.[1]

The absence of this impact in consumer spending patterns indicates that many companies are absorbing tariff costs rather than immediately transferring them to customers. This approach appears feasible due to strong earnings performance and robust profit margins across many sectors.

Current results show that among the more than one-third of S&P 500 companies that have disclosed second-quarter earnings, 80% delivered positive earnings-per-share surprises, with the blended earnings growth rate of 6.4% surpassing the anticipated 4.9%, per FactSet data.[2]

Although this growth rate trails recent quarters, it indicates that an "earnings recession" – characterized by steep profit declines like those seen in 2020 or 2022 – appears less probable than initially anticipated.

Understanding tariff mechanics helps explain their potential appearance in financial results. While governments collect tariffs as revenue, the actual burden falls either on U.S. exporters or domestic consumers and businesses through elevated prices. The distribution between these groups depends largely on their respective "pricing power."

Consider rare earth metals essential for electronic devices – the U.S. imports nearly all of these materials. Given limited alternative sources, tariffs would likely be transferred directly to consumers. This explains why the administration has pursued agreements to expand rare earth metal imports from China and why domestic production has gained increased attention.

Conversely, the automotive sector operates in a highly competitive environment with numerous domestic manufacturers and countries seeking U.S. market access. When tariffs target vehicles from specific countries, those manufacturers might absorb portions of the costs to maintain competitiveness against other nations' products and domestic alternatives.

Short-term tariff effects therefore depend on industry competitiveness and available alternatives for consumers and businesses. Over longer periods, supply chains can adjust to new circumstances and currency values may shift accordingly.

Consequently, tariff impacts on earnings and corporate responses differ significantly across industries. General Motors reported $1.1 billion in tariff-related profit losses during the second quarter, with margins declining from 9% to 6.1%.[3] Meanwhile, Cleveland-Cliffs, a U.S. flat-rolled steel producer, announced second-quarter results exceeding expectations, benefiting from tariffs that reduced steel imports.[4]

The chart above demonstrates how earnings expectations vary considerably across sectors, partially reflecting trade policy impacts. Understanding tariffs' complete corporate effects may require several quarters, particularly as new trade agreements continue emerging.

Multiple countries have established new arrangements, some featuring substantially lower tariffs than those initially declared April 2. Recent announcements indicate the European Union and Japan will face 15% tariffs on U.S. exports, while Indonesia and the Philippines will encounter 19% tariffs. Discussions with China remain active following earlier trade truce developments.

Financial markets have sustained their climb to new peaks as companies report earnings beats and additional trade agreements are finalized. The chart above shows the S&P 500 achieving over a dozen record highs this year, with most occurring within the past month. The Nasdaq has similarly reached historic levels, surpassing its previous December peak, while the Dow approaches record territory. Though current market levels may concern some investors, major indices frequently establish multiple new highs annually during expansion periods.

While markets perform well, concerns about tariffs' economic impact remain. Various economic projections, including Federal Reserve forecasts, suggest inflation may run slightly higher with somewhat slower growth. Industry impacts will vary based on input costs, with import-heavy sectors potentially facing compressed profit margins. However, these projections must be balanced against domestic investment benefits and companies' potential to adapt through innovation and improved efficiency.

Although tariffs have reached historically elevated levels, predictability matters more, as stable business environments enable companies to adapt operations and supply chains more effectively. Looking ahead, the current Wall Street consensus projects S&P 500 earnings growing at a 9.5% annual rate. These forecasts anticipate accelerating growth over the next two years as global trade stabilizes, though significant changes could occur in the interim.

Stock market performance typically aligns with corporate earnings over extended periods. The accompanying chart demonstrates that while S&P 500 prices and earnings don't match perfectly, they follow similar broad patterns. Economic growth drives earnings higher, which subsequently elevates stock prices. Therefore, while the economy and stock market aren't identical, they remain closely connected through corporate performance.

This relationship explains how tariff impacts on profits can affect investors. Market valuation as "cheap" or "expensive" depends not solely on stock prices but also on corporate results. The price-to-earnings ratio represents simply a stock or index price divided by an earnings measure, such as projected twelve-month earnings.

This means that even with unchanged prices, rising earnings improve market attractiveness, and the reverse holds true. The current S&P 500 price-to-earnings ratio stands at 22.2x, significantly above the historical average of 15.8x and approaching the dot-com bubble peak of 24.5x. While current earnings trends appear positive, continued market attractiveness will depend on economic growth and earnings performance.

The bottom line? This earnings season may offer valuable insights into tariff effects on consumers and businesses. For investors, comprehending these developments while maintaining focus on long-term planning remains the optimal approach to achieving financial objectives.

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[1] https://budgetlab.yale.edu/research/state-us-tariffs-july-23-2025

[2] https://insight.factset.com/topic/earnings

[3] https://investor.gm.com/static-files/eaf4a73f-ef85-4134-8533-902e6a9a8177

[4] https://www.clevelandcliffs.com/investors/news-events/press-releases/detail/678/cleveland-cliffs-reports-second-quarter-2025-results

Understanding Federal Reserve Independence and Its Impact on Investors

Sean Gross, CFP®, AIF®

Co-Founder & CEO

July 21, 2025

The relationship between political leadership and the Federal Reserve has recently sparked renewed debate about central bank independence. This tension arises from fundamentally different objectives and timeframes that guide elected officials versus monetary policymakers.

Political leaders typically favor accommodative monetary conditions to stimulate economic activity and support government financing needs. Meanwhile, the Federal Reserve must balance multiple considerations including price stability and financial system health, often requiring decisions that extend beyond electoral cycles.

While the Fed has faced criticism throughout its history, with numerous volumes documenting both achievements and missteps of various chairpersons, central bank independence has remained a cornerstone of the financial system for generations. Current discussions often focus on legal questions surrounding presidential authority over Fed leadership, procedural aspects of potential changes, and speculation about future appointments.

For investors, the critical consideration is whether monetary policy continues to serve economic stability effectively. Given that Jerome Powell's tenure as Fed Chair concludes by May 2026, regardless of any administrative actions, what factors should investors monitor regarding future Fed policy?

Central bank autonomy has transformed over decades

The chart illustrates nine Federal Reserve chairs appointed since 1948, with nearly all serving across administrations from different political parties, including reappointments by successive presidents. Jerome Powell exemplifies this pattern, initially nominated by President Trump in 2017 and later reconfirmed under President Biden. The data demonstrates consistent economic expansion under Fed leadership regardless of the nominating party.

Central bank independence represents a concept often assumed rather than examined, making its historical development worth understanding. As the nation's monetary authority, the Fed establishes interest rate policy and maintains financial system oversight. Independence enables decision-making free from political considerations, focusing solely on economic and financial stability.

This autonomy evolved gradually over time. The Federal Reserve emerged not from constitutional mandate but through Congressional legislation via the Federal Reserve Act of 1913. The Fed's dual mandate has similarly developed historically and is commonly understood as maintaining full employment while targeting 2% inflation. Contemporary monetary policy therefore reflects lessons learned from past economic disruptions including recessions and inflationary episodes.

After the Great Depression, the Banking Act of 1935 reorganized the Fed, concentrating authority within the Board of Governors and excluding the Treasury Secretary to minimize political interference. During World War II, the Fed temporarily subordinated independence by maintaining low rates to support wartime financing. The 1951 Treasury-Fed Accord restored autonomy by eliminating the obligation to support government bond pricing, widely viewed as reestablishing central bank independence.

Current inflation and policy dynamics present ongoing challenges 
Today's environment bears resemblance to the 1970s and early 1980s period. Before the 1972 election, President Nixon pressed for accommodative monetary policy to support his reelection prospects. Fed Chair Arthur Burns, previously Nixon's economic advisor, complied by easing policy, which economists believe contributed to the subsequent decade's inflationary pressures.1

Paul Volcker's leadership in the early 1980s finally contained inflation through recession-inducing policies. Though most economists credit this approach with ending the era's "stagflation," it generated significant political friction. Volcker's memoirs describe pressure from the Reagan administration against rate increases before elections.2

Current economic conditions mirror aspects of the 1970s, with policymakers balancing elevated rates to secure inflation progress against lower rates to support growth. While inflation has moved closer to the Fed's 2% objective, headline CPI remains at 2.7% with core inflation at 2.9% in recent data. The Fed maintains a cautious stance regarding potential inflationary effects from tariff policies.

The money supply chart above illustrates this challenge. Typically growing steadily to support stable expansion and inflation, the money supply serves as a crisis response tool, as demonstrated in 2020. Recent years have seen flat money supply growth as policymakers prioritized inflation control, potentially creating tension with some political preferences.

Further rate reductions remain anticipated
 
Beyond political considerations, the Fed is projected to implement additional rate cuts this year. Policy has remained unchanged following several reductions in late 2024, reflecting uncertainty about tariff implications. Fed policy fundamentally aims to support sustainable long-term growth patterns. During economic expansion, the Fed prevents overheating – often described as "removing the punch bowl." During weakness, lower rates may stimulate recovery.

This calibration proves challenging even under optimal conditions. Retrospectively, the Fed frequently faces criticism for being "behind the curve." Alan Greenspan, who led the Fed for nearly two decades, failed to address the housing bubble developing during his final years. More recently, critics argue the Fed responded too slowly to clear inflationary signals in 2022.

Rather than debating past Fed decisions, investors should focus on responding appropriately to current conditions within long-term frameworks. Historical evidence shows that leadership transitions and policy shifts create uncertainty, yet markets have generally performed well despite these challenges.

The bottom line? Markets and the economy have thrived under diverse monetary policy and political conditions. Maintaining flexible, long-term investment strategies capable of navigating uncertainty remains the most effective approach to achieving financial objectives.


1 https://www.aeaweb.org/articles?id=10.1257/jep.20.4.177 

2 Volcker, P. A. (2018). Keeping At It: The Quest for Sound Money and Good Government

Guest Article: How Keynesians Got The U.S. Economy Wrong…Again

We are delighted to share, with permission, the following article from highly esteemed economist Daniel Lacalle, PhD.1

July 13, 2025

In the past six months, a chorus of analysts and commentators warned of an impending collapse of the US economy. Many predicted that persistent inflation, high interest rates, and ballooning government deficits would drag growth to a halt and trigger a recession.

However, the data tell a different story: the United States demonstrates economic strength, fiscal control, and improving inflation expectations.

Rising Growth Estimates Defy the Pessimists

At the start of 2025, forecasts painted a gloomy picture. The first quarter saw a contraction in GDP, with the US economy shrinking by 0.5%. However, this decline resulted from lower government spending and higher imports, while the private sector continued to strengthen. Soon afterward, the narrative shifted. By mid-year, leading economic models and analysts began revising their growth estimates upward. Trading Economics, for example, projected a robust 3.5% GDP growth rate for the second quarter, a sharp reversal from earlier pessimism. The Atlanta Fed’s GDPNow model reflected a similar positive change, estimating 2.6% growth for Q2 as of July 9. Additionally, consensus estimates rose to 2.1% for the second quarter, up from 1.3% previously, while inflation estimates declined.

This turnaround has been fueled by several factors:

• American households continued to spend, especially as wage growth outpaced inflation.
• Fixed investment rose by 7.6% in early 2025, the strongest pace since mid-2023.
• Businesses front-loaded imports ahead of new tariffs, boosting economic activity, and subsequent revisions showed positive exports and normalized imports.

These widespread upward revisions have caught many commentators by surprise and forced a re-evaluation of earlier bearish calls.

Inflation Expectations Are Falling

Another area where analysts misjudged the economy is inflation. After years of elevated price pressures, many expected inflation expectations to remain stubbornly high. Instead, recent data show a clear downward trend: consumer price inflation has declined on a one-, three-, and six-month basis. US consumer inflation expectations for the year ahead fell to 3% in June 2025, down from 3.2% in May—the lowest level in five months. Three-year and five-year inflation expectations also edged down to 3.0% and 2.6%, respectively.

Energy costs have declined significantly, with gasoline prices falling by 12% year-over-year in May and fuel oil prices dropping by 8.6%. Shelter inflation—a key driver of overall CPI—has also eased, with the rate dropping to 3.9% in May from 4% in April. Monthly price increases have been modest, with the CPI rising just 0.1% in May and forecasts for June suggesting a 0.23% monthly increase, keeping inflation at the lowest level in five years and, according to Truflation, running at a 1.7% annualized rate in June.

The broad-based decline in inflation expectations reflects the strength of the US supply chain, a slowdown in housing costs, and a decline in essential food prices.

The June Budget Surplus: A Fiscal Surprise

Perhaps the most dramatic evidence that analysts underestimated the US economy came in June, when the federal government posted a budget surplus of over $27 billion—the first monthly surplus since 2017. Consensus had widely expected a deficit of more than $40 billion.

The surplus was driven by two key factors:

• A sharp reduction in spending, as government expenditures fell by $187 billion in June due to aggressive cost-cutting measures and a reduction in the size of the federal workforce.
• Customs duties soared to $27 billion in June, up from $23 billion in May and more than quadruple the level from a year earlier.

Receipts rose by 13% compared to the previous June, while expenditures dropped by 7%.

Spending Cuts and Fiscal Restraint

The fiscal turnaround has also been powered by a significant reduction in non-defense discretionary spending. President Trump’s 2026 budget proposal slashed non-defense outlays by $163 billion, or 23% from the previous year, bringing spending to its lowest level since 2017.

While the broader federal deficit remains large—over $1.34 trillion for the year to date—it is mostly a legacy of the previous administration’s policies and is expected to fall significantly for the year. The lower deficit in May, along with strong April and June surpluses and spending cuts, has provided positive breathing room and challenged the narrative of runaway fiscal irresponsibility.

A Lesson in Humility

The events of 2025 remind us of the risks of Keynesian economic forecasting and the fallacy of ceteris paribus analysis (all else remaining equal). While challenges remain, especially regarding long-term debt and interest costs, the US economy has once again proven more dynamic and adaptable than many experts anticipated, and the administration’s focus on fiscal responsibility is clear.

Rising growth estimates, falling inflation expectations, budget control, and disciplined spending cuts highlight that earlier fearmongering estimates were ideologically motivated. The lesson from this experience is to approach economic forecasts with caution. Keynesian estimates often prove overly optimistic regarding growth and inflation when government spending increases and predict gloom when the opposite happens.

The US economy is stronger, and the private sector is likely to grow faster as tax cuts and deregulation lift burdens on investment and employment.

1Daniel Lacalle (Madrid, 1967). PhD Economist and Fund Manager. Author of bestsellers "Life In The Financial Markets" and "The Energy World Is Flat" as well as "Escape From the Central Bank Trap". Daniel Lacalle (Madrid, 1967). PhD Economist and Fund Manager. Frequent collaborator with CNBC, Bloomberg, CNN, Hedgeye, Epoch Times, Mises Institute, BBN Times, Wall Street Journal, El Español, A3 Media and 13TV. Holds the CIIA (Certified International Investment Analyst) and masters in Economic Investigation and IESE.

Managing Alternative Assets in Today's Market Environment

Sean Gross, CFP®, AIF®

Co-Founder & CEO

July 15, 2025

Investors constantly face the challenge of maintaining long-term focus while navigating short-term market volatility. This challenge becomes particularly pronounced during periods of market rallies, when various asset classes capture headlines and create momentum that can tempt investors to abandon their strategic approach. Recent surges in digital currencies, industrial metals, and precious metals exemplify how market enthusiasm can create pressure to react impulsively.

Historical market cycles have consistently demonstrated that sustainable investment success requires discipline and diversification rather than speculation. Traditional asset classes like stocks and bonds remain portfolio cornerstones because they provide the risk-return characteristics necessary to achieve long-term financial objectives. Market euphoria, whether focused on technology stocks or digital assets, can reverse rapidly and unexpectedly.

The foundation of effective investing involves flexible portfolio construction that leverages diverse asset characteristics while maintaining alignment with long-term objectives. Success is measured not by whether a portfolio contains this week's trending investment, but by its ability to support retirement security, family financial needs, homeownership goals, or philanthropic aspirations.

Recent record highs in Bitcoin, copper price surges, and rallying precious metals present investors with complex allocation decisions. These movements reflect both broad market optimism and specific policy developments from Washington, along with increased institutional participation. The challenge lies in evaluating these assets through a portfolio lens rather than as isolated investment opportunities.

Digital currencies exhibit significant volatility characteristics

Bitcoin's recent surge coincides with Congressional consideration of multiple cryptocurrency regulations during what observers call "Crypto Week." The House of Representatives is examining the GENIUS Act for stablecoin regulation, the CLARITY Act for comprehensive digital currency frameworks, and the Anti-CBDC Surveillance State Act to prevent Federal Reserve digital currency creation.

Digital currencies attract attention through extreme price movements, institutional adoption, new investment vehicles like ETFs, and monetary policy concerns. These factors involve complex and speculative elements. For long-term investors, the critical question centers on whether cryptocurrencies can serve meaningful portfolio functions.

Bitcoin's portfolio appropriateness depends on individual goals and risk capacity. The reality involves price volatility multiple times greater than equity markets. The 2022 bear market illustrated this dynamic, with Bitcoin declining over 75% compared to approximately 25% for the S&P 500. This demonstrates how digital currencies can magnify portfolio risk during market stress periods. While Bitcoin subsequently rebounded more strongly, the chart illustrates similar performance patterns to the S&P 500 since 2018, despite different trajectories.

Important distinctions exist among cryptocurrencies regarding price behavior. Ethereum, another prominent digital currency, shows negative performance this year and has declined roughly 25% from December highs. Numerous other cryptocurrencies and "meme coins" have followed divergent paths. Careful portfolio context evaluation remains essential rather than reacting to media coverage.

Industrial metal performance reflects economic and policy dynamics

Copper's surge to record levels followed White House announcements of 50% import tariffs on this essential industrial metal.

As a critical component in construction, electrical infrastructure, electronics, and renewable energy development, copper serves vital economic functions. Market participants often reference copper as "Dr. Copper" due to its price movements potentially indicating broader economic trends.

Currently, the United States imports 45% of its copper consumption, primarily from Chile, Canada, Mexico, and Peru. Tariff policies may encourage domestic production over time while affecting short-term pricing and supply chain dynamics. China's significant copper consumption also creates sensitivity to global economic conditions and trade relationships.

For investors, distinguishing between dramatic price movements and portfolio fit remains crucial. Attempting to predict copper's next direction resembles forecasting precise economic and trade policy outcomes. Instead, focus should center on whether copper and similar assets enhance portfolio characteristics alongside other economically-sensitive holdings like equities.

Precious metals present unique portfolio considerations

Gold and silver have recently benefited from their traditional roles as potential hedges against currency volatility, inflation concerns, geopolitical tensions, and central bank purchasing activity. Theoretically, these metals can provide value storage during economic uncertainty, though they face limitations including the absence of income generation.

The accompanying chart demonstrates gold's performance during events like the global financial crisis. However, over extended periods, equity markets have surpassed gold performance despite recent rallies. During the 2010s, many anticipated continued gold appreciation amid low Federal Reserve interest rates. The failure of this expectation illustrates the difficulty and counterintuitive nature of predicting precious metal directions.

For long-term investors, portfolio alignment with financial objectives remains paramount. Assets including Bitcoin, copper, gold, and silver highlight both potential advantages and the necessity of thoughtful allocation decisions. These assets should enhance rather than substitute for diversified holdings in stocks, bonds, and other foundational asset classes.

The bottom line? While various assets gain attention through recent rallies, investors should resist chasing short-term performance. Understanding each asset's distinctive characteristics provides the optimal approach for aligning portfolios with long-term financial objectives.
 
Telos Wealth Management, LLC, is a registered investment adviser in the state of Washington. The Adviser may not transact business in states where it is not appropriately registered or exempt from registration. Individualized responses to persons that involve either the effecting of transactions in securities or the rendering of personalized investment advice for compensation will not be made without registration or exemption.

Guest Article: What prevents Trump from implementing the “Chainsaw” approach like Milei?

We are delighted to share, with permission, the following article from highly esteemed economist Daniel Lacalle, PhD.1

Why Can't Trump Apply the "Chainsaw" Like Milei? A Detailed Analysis

July 4, 2025

In recent months, many libertarians have criticised Donald Trump’s economic policies, arguing that he is not implementing drastic public spending cuts like Javier Milei has done in Argentina.

However, this comparison ignores key structural and contextual differences between the two countries and their governments. Below is a detailed explanation of why the situation in the United States under Trump is different from that of Argentina under Milei and why criticisms of Trump’s strategy are unfounded.

1. The Committed Budget: Biden’s Legacy

It is hard to understand why European libertarians fail to grasp such a basic concept as the “fiscal year”. The U.S. fiscal year begins on October 1, and the Biden administration took advantage of this to ramp up spending.

When Trump took office in January 2025, 97% of the federal budget for that year was already committed or spent. This was due to the Biden administration’s approval of several “Full Year Continuing Resolutions”, which left most funds and expenditures locked in for fiscal year 2025. Thus, Trump had no room to make immediate and drastic cuts, as most of the budget was untouchable until the next fiscal cycle.

Despite this, in 2025, discretionary spending reductions equivalent to $541 billion were carried out, and the accumulated deficit between April and May 2025 was 97% lower than in the same period of 2024.

2. Mandatory and Discretionary Spending

Mandatory spending (which includes programs like Social Security and Medicare) had already been increased by the Biden administration, and this increase took effect between February and December 2025. The U.S. fiscal year starts in October, and Biden implemented most of these increases through Continuing Resolutions (CRs) and the extension of existing programs, consolidating and, in many cases, increasing federal spending in key areas.

These resolutions included over $100 billion in funds for federal disaster assistance programmes, $29 billion for FEMA’s Disaster Relief Fund, and $10 billion in economic assistance for agricultural producers.

At the end of 2024, Biden approved a $54 billion (8%) increase in major mandatory spending programmes such as Social Security, Medicare, and Medicaid, as well as the extension of Obamacare, all applicable to 2025.

The Environmental Protection Agency (EPA) budget grew by $21 billion (700%), and the Trump administration was only able to act on $14 billion that was discretionary.

It is essential to remember that Biden did all this without a new budget law, simply by maintaining and extending existing allocations.

Biden’s proposed 2025 budget included additional increases, but these were blocked because they did not receive congressional approval.

Trump needs congressional approval to reverse these increases and reduce spending. That is what the “Big Beautiful Bill” includes. On the other hand, discretionary spending, especially in defence, was also committed, further limiting the new government’s immediate room for action.

The Big Beautiful Bill includes the first reduction in mandatory spending in the last sixty years—$1.6 trillion—and $2.4 trillion in discretionary spending.

3. Initial Fiscal Results

Despite these restrictions, the Trump administration achieved certain advances: in April, the second-largest fiscal surplus in history was recorded, and although a deficit reappeared in May, the deficit between March and May has been slashed compared to 2024. This indicates that measures were already being taken to improve the fiscal situation, mainly through higher revenues from trade agreements and private sector growth.

4. The “Big Beautiful Bill” and Deficit Reduction

It is astonishing that some libertarians and Austrians criticise the Big Beautiful Bill by buying into the Keynesian narrative that there will be no improvement in revenues, growth, employment, or investment from deregulation, trade agreements, and tax cuts.

That some libertarians deny the Laffer curve and the boost from deregulation surprises me. The Big Beautiful Bill incorporates $7 trillion in committed investments from trade negotiations, which also attract $4 trillion in tax revenues over the legislative period and a stimulus effect on the economy that results in an increase in tax revenues in the baseline scenario of $1.2 trillion.

Contrary to what some critics claim, the “Big Beautiful Bill” will not increase the deficit but will significantly reduce it.

A reduction of $1.6 trillion in mandatory spending and $2.4 trillion in discretionary spending is expected between 2026 and 2027. Additionally, an increase in tax revenues is anticipated thanks to deregulation, tax cuts, and new trade agreements, which will strengthen economic growth and employment.

We liberals, libertarians, and Austrians should be less critical of the greatest effort in reducing the State, liberalisation, deregulation, spending cuts, and tax reduction since 1990, but above all, some should not buy into the narrative that denies the positive effect on revenues and growth from deregulation, tax cuts, and trade negotiations.

5. Comparison with Milei: Similarities and Differences

Milei was able to implement immediate cuts because he inherited an open budget and extremely high inflation, which allowed him to reduce public spending in real terms by not adjusting it for inflation. Argentina’s budget does not include the provisions that the Biden administration incorporated, so President Milei was able to carry out a 30% reduction in public spending immediately and with unquestionable success, especially by eliminating subsidies, public works, and non-automatic transfers.

In contrast, Trump inherited a budget that was already committed and much lower inflation (less than 2.5%), limiting the impact of not adjusting spending for inflation.

If we compare both administrations, a very similar effort has been made. Trump has reduced public spending by 5% in the first quarter, and savings exceed $540 billion. By the end of his term, President Trump will have carried out a reduction in public spending equivalent to Milei’s.

Both leaders have promoted policies of tax reduction, deregulation, and the promotion of investment and employment. However, Trump’s tools and room for manoeuvre have been conditioned by the U.S. institutional structure and the decisions of the previous administration.

6. Conclusion

The policies of Trump and Milei share the goal of reducing public spending, fostering growth, and improving employment, but the starting circumstances are radically different. Criticising Trump for not applying an immediate “chainsaw” ignores the budgetary and legal constraints he faces in the United States. What matters is recognising that, within his constraints, Trump is implementing historic cuts and pro-growth policies that will positively impact the U.S. economy in the medium term.

My messages to those who attack the Trump administration for not being liberal enough are as follows:

• Name a single U.S. administration that has successfully implemented a comparable approach to deregulation, tax cuts, and spending reduction while also passing a significant reduction in mandatory spending through both Congress and the Senate.
• Buying into the Keynesian estimates of fiscal impact is curious. Denying the positive impact of reducing imports, increasing exports, and collecting more from trade agreements is surprising. Denying the economic and fiscal boost from deregulation and tax cuts is unforgivable.

1Daniel Lacalle (Madrid, 1967). PhD Economist and Fund Manager. Author of bestsellers "Life In The Financial Markets" and "The Energy World Is Flat" as well as "Escape From the Central Bank Trap". Daniel Lacalle (Madrid, 1967). PhD Economist and Fund Manager. Frequent collaborator with CNBC, Bloomberg, CNN, Hedgeye, Epoch Times, Mises Institute, BBN Times, Wall Street Journal, El Español, A3 Media and 13TV. Holds the CIIA (Certified International Investment Analyst) and masters in Economic Investigation and IESE.