Industrial Research: What impact does the "Great American Beauty Act" have in the United States?

On July 3, US time, the "One Big Beautiful Bill" narrowly passed the US House of Representatives with a vote of 218-214 and was submitted to Trump. Republicans reached their goal of passing the bill before the US Independence Day on July 4th. The bill has been controversial since its introduction, and what are the main contents of the bill and what market impact will it have? In summary, the core contents of the "One Big Beautiful Bill" include: making the 2017 tax cuts permanent, significant cuts in healthcare subsidies, a one-time increase in the debt ceiling by $5 trillion, and canceling tax breaks for new energy vehicles. The final version of the bill removed the controversial "Article 899", which imposed punitive taxes on governments, businesses, individuals, sovereign wealth funds, pension funds, and private trusts implementing discriminatory tax policies. The "One Big Beautiful Bill" will significantly worsen the US fiscal outlook, with the permanent extension of the 2017 tax cuts being a major contributor to the deterioration of the budget deficit. In the fiscal year 2026 (starting in October this year), the budget deficit will significantly worsen, with the deficit likely to increase from 6% to 7% to 7.5%. In the short term, the expansion of the US budget deficit will help support the economy and increase the likelihood of a soft landing. The one-time increase of $5 trillion in the debt ceiling will be negative for US bonds and positive for gold. There is a possibility of an impact on the 10-year bond yield in the third quarter, with a potential push towards 5%. Gold prices are expected to continue to rise in the medium to long term after this round of adjustment, with limited downward movement (usually not exceeding 10%). The short-term decline in the US dollar index has slowed, but the "de-dollarization" trend continues, with the long-term central level of the US dollar index moving lower. The main contents of the bill and its market impact are as follows: 1. Main contents of the bill: The "One Big Beautiful Bill" focuses on tax cuts and raising the debt ceiling, and partially cuts government spending on healthcare subsidies, new energy subsidies, etc., specifically including: - Making the 2017 tax cuts permanent. Trump's tax cuts introduced in the previous term were originally set to expire this year, but this legislation partially makes the tax cut provisions permanent, extends some, and further increases the tax relief limit. - Significant cuts in Medicaid spending. The US government's Medicaid coverage is approximately 71 million people. The latest legislation further tightens the eligibility criteria for Medicaid, with Medicaid applicants aged 19 to 64 required to work at least 80 hours per month, or they will not receive assistance. Exemptions can be made for those with dependent children, special medical condition requirements, etc. The Congressional Budget Office estimates that the latest legislation will cut $1 trillion in Medicaid spending. - One-time increase in the debt ceiling by $5 trillion. - Canceling tax breaks for new energy vehicles. - Reducing the maximum limit for federal student loan applications. - Those with qualifying income from external sources, freelancers, etc., can enjoy a maximum tax cut of 23%. - Elimination of "Article 899". This provision imposes punitive taxes on governments, businesses, individuals, sovereign wealth funds, pension funds, and private trusts implementing discriminatory tax policies. 2. Significant worsening of the fiscal outlook The "One Big Beautiful Bill" will significantly worsen the US fiscal outlook, with the permanent extension of the 2017 tax cuts being a major factor. According to the Tax Foundation, making the tax cuts permanent will not only reduce US government tax revenue but also require more borrowing to meet fiscal spending needs, leading to an increase in interest payments. Over the next 10 years, the US budget deficit will increase by $4.6-5.4 trillion, and the US budget deficit will exceed 10%, much higher than the 5-6% without extending the tax cuts as projected by the Congressional Budget Office (CBO). The latest analysis by the CBO on June 4th shows that making the tax cuts permanent will increase the US budget deficit by $2.4 trillion over the next 10 years and the budget deficit rate will exceed 7% in the 2026 fiscal year. At the same time, the US government's leverage ratio over the next 10 years will increase from 117% without extending the tax cuts to 129%, and if interest costs remain at a high level of 4.5%, the leverage ratio will further rise to 133%. The budget deficit will significantly worsen in the fiscal year 2026. 3. Market impact In the short term, the expansion of the US budget deficit will help support the economy and increase the likelihood of a soft landing. This is in line with previous predictions, as inventory cycle demand indicators have weakened rapidly over the past six months, and the second half of this year may see a relatively stable period or even a rebound. Short-term repairs in high-frequency small cycles are also likely to occur simultaneously. For US bond yields, the soft landing of the US economy and re-inflation have set a high tone for US bond yields. The threat of tariffs and the increase in the debt ceiling after supply shocks significantly increase the upward risk of yields. Historically, when the debt ceiling has been raised by more than $1 trillion in a single instance, US bond yields have tended to rise over the next six months. This increase of $5 trillion will have a strong upward effect on US bond yields. It is expected that there may be a re-impact on the 10-year US bond yield in the third quarter, pushing it towards 5% again. For gold, the deterioration of the US fiscal outlook and erosion of the US dollar's credit remain core trading logics. Historically, in years of deteriorating budget deficits, gold prices have shown a high probability of increasing. The "One Big Beautiful Bill" will deteriorate the US medium to long-term fiscal outlook, consolidating the basic support for a bull market in gold. In the short term, with significantly higher debt ceiling, there is limited downward space for gold prices (usually not more than 10%), with a medium to long-term upward trend. For the US dollar index, the increased probability of a soft landing in the US economy and convergence of rate cut expectations have helped slow down the short-term decline. With short-term improvement in economic data, the US dollar index has shown signals of being underestimated. However, in the medium to long term, the budget deficit will have more negative effects on the US dollar. Overseas investors' doubts about the sustainability of US debt undermine the credit of the US dollar, and the current "de-dollarization" trend continues, with a long-term downward movement in the US dollar index. This article is a reprint from the public account "Industrial Research", GMTEight editor: Wang Xiaoli.