The U.S. government’s debt-to-GDP ratio has ballooned over the past decade, rising from roughly 100% in 2013 to nearly 124% by 2024, according to the Office of Management and Budget. Confronted with this mounting debt, Washington has responded with a bold but risky strategy: aggressive tariffs and reshoring of manufacturing. While this may address short-term imbalances, it risks weakening America’s economic leadership and global credibility.

A more strategic, patient alternative remains available—if the U.S. is willing to course-correct.

The Road to Debt: From Factories to Trade Deficits

Over the past 40 years, the U.S. has transitioned from an industrial to a consumption-driven economy. Manufacturing, which contributed about 25% to GDP in 1970, now accounts for just 10%. The outsourcing of production to China, Mexico, Vietnam, and others has led to the loss of nearly 5 million factory jobs between 2000 and 2020 alone.

This shift fueled chronic trade deficits—but paradoxically, these deficits sustained global dollar liquidity. By importing more than it exported, the U.S. effectively supplied the world with dollars, reinforcing the greenback’s role in global trade, investment, and central bank reserves.

What Really Matters: Not Just the Debt, But the Plan

Debt, by itself, isn’t necessarily dangerous. After World War II, U.S. debt stood at 106% of GDP but fell to 23% by the 1970s due to disciplined fiscal management and economic growth.

What investors and global partners watch is not just the debt level but the direction: Is there a credible plan to reduce it? Is political leadership committed to long-term fiscal reform?

At present, the U.S. is showing neither. Rather than tackling structural imbalances, Washington has resorted to short-term tactics like tariffs and expanded spending, further shaking investor confidence—as seen in rising bond yields.

The Current Path: A Tariff-Led Gamble

In 2025, the Trump administration intensified the use of tariffs, building on measures dating back to 2017. A sweeping 10% base tariff now applies to nearly all imports, with additional country-specific tariffs hitting nations with significant trade surpluses with the U.S.

Among the notable hikes:

• China: Effective tariffs exceed 125% on many goods

• India: 26% reciprocal tariff

• Vietnam: 46%

• EU: 20%

• Bangladesh, Thailand: 37%

• South Korea, Japan, Malaysia: 24–26%

Even U.S. neighbors, Canada and Mexico, face targeted duties despite exemptions under USMCA.

These measures have raised the average effective U.S. tariff rate to around 28%—the highest since 1901. Consumer prices have surged:

• Clothing: Up 25–29% long-term

• Food: 2.6–2.8% increase

• Vehicles: New cars now cost ~$7,400 more

The economic impact is stark: U.S. GDP growth is down 1.1 percentage points short-term, with a long-term drag of 0.6%, or about $180 billion annually. Average households are losing nearly $4,900 per year, with lower-income families disproportionately affected.

Risks Beyond Borders

This aggressive approach carries three major global risks:

1. Dollar Liquidity Shrinkage: Reduced imports mean fewer dollars circulating globally, disrupting trade and finance.

2. Erosion of Dollar Dominance: The dollar’s share of global reserves has dropped from 71% in 2000 to 58% today. Rising U.S. yields reflect waning confidence.

3. Geoeconomic Fragmentation: As global faith in U.S. leadership declines, nations may seek alternative trade blocs and currencies, weakening Washington’s influence.

Rather than revitalizing the economy, this strategy may end up undermining the very system that supports America’s global stature.

A Smarter Alternative Was Available

Instead of blunt-force tariffs, the U.S. could have adopted a more nuanced, multi-pronged strategy:

1. Incentivized Reshoring, Not Blanket Tariffs

The U.S. should have focused on reshoring key strategic sectors—semiconductors, biotech, defense, and renewables—through targeted tax incentives and regulatory reforms.

The CHIPS and Science Act of 2022, for instance, allocated $52 billion to support semiconductor manufacturing. This prompted major investments: Micron in New York ($20 billion), TSMC in Arizona ($40 billion).

By scaling this model across sectors, Washington could have gradually rebuilt domestic capabilities, supported job creation, and reduced strategic dependencies—without global disruption.

2. Fiscal Prudence: Cut the Fat, Not the Muscle

A serious national effort to trim government inefficiencies is overdue. The Department of Government Efficiency (DOGE), controversially advised by Elon Musk, has taken initial steps to shutter redundant agencies and cut wasteful spending.

The Government Accountability Office (GAO) estimates over $150 billion in improper federal payments annually. A modest 10% efficiency gain could save over $1 trillion over a decade.

Such credible reforms would reassure global investors, stabilize Treasury yields, and bolster the dollar—building trust through visible fiscal discipline.

3. Rebuild Trust with a Public Commitment to Fiscal Health

Leadership must openly acknowledge debt as a national security threat—not just an economic issue. A bold, bipartisan “New Fiscal Responsibility Agenda,” with transparent goals like stabilizing the debt-to-GDP ratio by 2030, would send a powerful signal.

Markets respond to confidence and clarity. Public commitment, backed by action, can stabilize expectations and give the U.S. room to implement deeper reforms over time.

Conclusion: It’s About Credibility, Not Just Numbers

The greatest risk to the U.S. is not its sheer debt load—but the absence of a credible, strategic plan to manage it. Quick fixes like tariffs may offer political wins but do little to resolve underlying fiscal vulnerabilities.

What America needs is a disciplined roadmap: rebuild industrial strength with incentives, cut wasteful spending through governance reforms, and most importantly, send a clear signal of intent to global partners and markets.

A patient, credible, and strategic path—not a tariff-led shock—would better serve the U.S. economy and its leadership in the global order.

(The author is Assistant Professor of Marketing at O.P. Jindal Global University. Views are personal. He can be contacted at vsaha@jgu.edu.in.)