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WikiFX Express

Gold and Silver Buckle Under BCOM Rebalancing Weight Ahead of Critical NFP

Trump Triggers Fiscal Jitters with $1.5tn Defense Ambition Funded by Tariffs

WikiFX

| Two days ago

Abstract：US President Trump shakes fiscal hawks and defense contractors alike by proposing a 50% defense budget hike funded by tariffs, while simultaneously threatening industry buybacks.

President Donald Trump has injected fresh volatility into US equity and bond markets with a radical fiscal proposal: a 50% increase in the national defense budget to $1.5 trillion for 2027, ostensibly calculated to be funded entirely by tariff revenue.

Tariffs as the New Funding Model?

The proposal, announced via social media, champions a “Dream Army” strategy but raises immediate concerns regarding US fiscal health and inflationary pressure.

The Math Problem: Budget watchdogs, including the Taxpayers for Common Sense, have labeled the proposal “absurd,” noting that tariff revenues are historically insufficient to cover such a massive expansion without exploding the deficit. The US national debt already exceeds $38 trillion.

Inflationary Risk: Funding government spending through aggressive tariffs is widely viewed by economists as a tax on consumers, potentially reigniting inflation. This scenario complicates the Federal Reserve's path to further rate cuts, indirectly supporting the US Dollar (USD) but hurting Treasury prices.

War on Contractors: “Stop the Buybacks”

In a move that mirrors progressive policy, Trump simultaneously attacked major defense contractors, specifically targeting Raytheon (RTX).

The Ultimatum: The President threatened to freeze contracts unless firms cap executive pay at $5 million and cease stock buybacks and dividends, demanding capital be redirected to manufacturing capacity.

Market Reaction: Defense stocks, traditionally a safety play during geopolitical tension, faced immediate selling pressure. This introduces a new risk premium for US industrial equities, as investors gauge whether this is rhetoric or impending executive action.

Market Implication: This “gun-and-butter” fiscal approach—expanding spending while disrupting corporate capital allocation—creates a confusing environment for the S&P 500. For FX traders, the primary takeaway is the potential for higher-for-longer US yields if the bond market sniffs a deficit blowout.

Disclaimer:

The views in this article only represent the author's personal views, and do not constitute investment advice on this platform. This platform does not guarantee the accuracy, completeness and timeliness of the information in the article, and will not be liable for any loss caused by the use of or reliance on the information in the article.