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Edited by: James Desio and Hannah Bowen

Happy Thursday! In today’s newsletter, we examine President Donald Trump’s economic agenda, the Department of Government Efficiency's (DOGE) latest cuts to the US Department of Education, and US investment in China. 

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1. Mass Deportation and GDP Growth 

Topline: As the Trump administration takes the reins of the US economy, inflation remains stuck above the Fed’s target of 2 percent, and the labor market is holding steady. AEI’s Michael Strain highlights that many of President Trump’s economic plans could strengthen the US economy—but his populist agenda for trade and immigration present a big risk to continued growth. 

Populist Problems: Recent projections show sustained 25 percent tariffs on imports from Canada and Mexico—which may begin as soon as next week—would reduce economic output by 0.4 percent, and GDP will fall by 1.2 percent by 2028 if Trump deports 1.3 million illegal immigrants.

The Good and the Bad: President Trump’s agenda for AI regulation, antitrust enforcement, domestic energy production, and taxes has the potential to strengthen the US economy. But his erratic communication, fixation on trade wars, and plans for mass deportation threaten to derail America's economic outlook. Strain writes Trump was elected because voters rejected “Bidenomics,” and he should focus on policies that boost growth.

“Given the US economy’s underlying strength, Trump has begun his second term with the wind at his back. He should build on this advantage by pursuing his many policy goals that would boost growth, rather than those that would impede it.”—Michael Strain

2. What’s DOGE Saving?

Topline: Last week, DOGE paid a visit to the US Department of Education and terminated 89 contracts—claiming they saved taxpayers $881 million. AEI’s Nat Malkus audits DOGE’s reported savings—and finds some major discrepancies.

The Receipts: For each of these contracts, there is a Total Potential Contract Value and a Total Obligated Value assigned. However, the sum of the Total Potential Contract Values yields $1,062 million, and the sum of Total Obligated Values yields $590 million—neither of which match DOGE’s purported $881 million, which Malkus argues is an arbitrary number that doesn’t hold water.

A Better Approach: If DOGE wanted to save taxpayer money, Malkus concludes that they didn’t need to terminate any contracts. Instead, the Secretary of Education could have prevented additional options from being exercised—realizing the same “savings” listed on their “wall of receipts.”

“DOGE has an unprecedented opportunity to cut waste and bloat. However, the sloppy work shown so far should give pause to even its most sympathetic defenders. If we can’t trust DOGE’s ‘receipts,’ we can’t know what its ‘move fast and break things’ approach is actually saving.” —Nat Malkus

3. America’s Investment in an Adversary  

Topline: Restrictions on American investment in Chinese companies and transparency on where the money is going are long overdue, AEI’s Derek Scissors writes. There are two types of investment: direct investment and portfolio investment. Although direct investment is more valuable, recent changes in US portfolio investment have been far greater.

• From 2017 to 2023, the largest annual increase in US direct investment in mainland China and Hong Kong was $18 billion. But the largest annual change in US portfolio investment in China and Hong Kong was $386 billion—and we know almost nothing about it.

• This is a bipartisan failure—and one that needs to be checked immediately. The US blocks inbound Chinese investment to protect advanced technology and restricts exports of advanced technology to China. But money flowing from the US into Chinese companies to support their technological development is not even monitored.

“On one side are all the concerns about [China] that politicians raise publicly; on the other is the potential for their donors to make money through foreign investment, trade, or other activity." —Derek Scissors

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