As President Donald Trump unveils his economic plans, it is becoming clearer that tariffs are central to his strategy of pursuing growth without inflationary implications. Craig Shapiro, a macro strategist at the Bear Traps Report, argues that tariffs are the “only way” to fund tax cuts without expanding the federal deficit in his analysis.
What Happened: According to Shapiro, a scenario of levying tariffs has become increasingly critical as Trump seeks to push forward his economic agenda. In an X post dated Feb. 9, he said that Trump’s proposed tax cuts without expanding the deficit is a major challenge.
Shapiro pointed out that the current budget deficit sits at 6-7% of GDP, and Trump's goal is to reduce it to 3% by the end of his term. “DOGE spending cuts won’t be big enough to move the needle if they won’t touch going entitlements and defense.” Shapiro added.
“So it seems like the only real way to bridge this gap to fund tax cuts without deficit expansion is TARIFFS,” said Shapiro.
Shapiro argues that tariffs not only serve as a way to rebalance global trade and revitalize American manufacturing, but they also provide a much-needed revenue stream for the U.S. government. By imposing tariffs, Trump could generate the necessary funds to finance his tax cuts while avoiding further deficit expansion.
As budget discussions intensify in the coming weeks, Shapiro predicts that tariffs will take center stage. While many believe that Trump may back down on tariffs, the underlying “math suggests he has no other choice but to use them.”
Why It Matters: Adding context to the necessity of tariff imposition, Shapiro claims that Treasury Secretary Scott Bessent has urged the President to shift his focus from short-term stock market gains to long-term economic indicators, particularly the 10-year Treasury yield.
It is a benchmark, that directly influences borrowing costs for both the federal government and American consumers, and has become a key metric for measuring the success of Trump's policies. Thus, he concluded that Trump needs to control the 10-year yields, and that requires addressing the rising deficit.
In recent months, market fears over inflation and rising government deficits have caused 10-year yields to climb. However, after scaling the highs of 4.89% in mid-January, the 10-year yields have settled around 4.49-4.50%, as of the publication of this article.
Shapiro suggests that the goal of the administration should be to lower these yields to reduce borrowing costs, benefiting “Main Street” Americans by making credit more affordable.
The 10-year yield is the true scorecard for economic success, Shapiro explained. “Obsessing about how the stock market is doing” is misleading, especially when “stock price momentum has increasingly become disconnected from the actual economy,” he said.
Price Action: As of Friday’s close the exchange-traded fund tracking the S&P 500 index, SPDR S&P 500 ETF Trust SPY fell 0.92% to $600.77 and the ETF tracking Nasdaq 100 index, Invesco QQQ Trust, Series 1 QQQ declined 1.26% to $522.92. The two-year Treasury notes yielded 4.28% and the 30-year notes yielded 4.70%.
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