What Trump and Musk can learn from ‘miraculous’ Milei’s first year in office

Argentina’s president says he is ‘exporting the model of the chainsaw and deregulation to the whole world’ with the help of Elon Musk

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As Elon Musk and Javier Milei hobnobbed at a gala dinner at Mar-a-Lago on Thursday, the conversation may well have focused on the latter’s turbulent first year in office, above all, his programme of deep austerity.
An economic libertarian and self-declared “anarcho-capitalist”, Argentina’s president campaigned last year wielding a chainsaw, which he vowed to take to his country’s creaking bureaucracy and chronic fiscal deficit.
Since his inauguration in December, he has slashed the South American nation’s federal budget by 32 per cent, a scale of belt-tightening rarely seen in peacetime, democratic societies.
The equally brash and unconventional Tesla, SpaceX and X owner insists he can cut the $6.75-trillion US federal budget by $2 trillion and has been tasked by Mr Trump with finding ways to turn that bold claim into reality.
Even before the Mar-a-Lago shindig, Mr Milei, 54, and Mr Musk, 53, were friends. The former visited a Tesla factory earlier this year while the latter has been talking up his plans to invest in Argentina.
Several days before the event, that personal relationship blossomed into a policy collaboration as the president announced that he had put Mr Musk in contact with Federico Sturzenegger, his minister of “deregulation and state transformation”.
“Donald Trump incorporated Elon Musk in his team to replicate the experience [of my administration’s spending cuts],” Mr Milei said. “In other words, we’re exporting the model of the chainsaw and deregulation to the whole world.”
There is no doubting the momentous nature of Mr Milei’s economic reforms – or the pain they are inflicting on many of Argentina’s 47 million citizens.
He has shuttered 13 of the 22 government departments and sacked, by some counts, as many as 30,000 public officials.
The poverty rate, meanwhile, has jumped from 42 per cent to 53 per cent as Mr Milei decreed an end to a laundry list of welfare benefits and subsidies. The queues at soup kitchens now snake around the block and there are regular protests in Buenos Aires. The economy will have shrunk by 3.5 per cent in 2024.
The hope, of course, is that these cuts will allow Argentina to rebound, finally putting an economy notorious for boom-and-bust cycles on a sustainable path to prosperity.
The World Bank expects Argentine GDP to grow by 5 per cent in 2025. But the jury remains out on Mr Milei’s shock therapy, with the first green shoots yet to appear.
Yet even if they do, there are reasons to doubt the likely success of emulating Argentina’s drastic economic restructuring in the United States, says Benjamin Geddan, an expert in international economics at the Wilson Center, a Washington DC-based think tank and Johns Hopkins University.
“Milei’s success in cutting spending while keeping the social peace is miraculous,” Mr Geddan adds, highlighting the broad acceptance in Argentina that public spending was out of control and drastic action was required – not a view shared by most Americans.
“It really wasn’t expected from a president who was weak, without a legislative majority, and inexperienced. But he could yet fail politically and economically.”
But assuming Mr Milei’s shock therapy does eventually pay off, the first, glaring reason it may not work for Mr Musk and Mr Trump is that, despite their shared chronic fiscal deficits, the US and Argentine economies are structurally distinct with fundamentally different challenges.
Argentina’s outsize public sector has long been widely viewed as bloated, its arcane regulations, myriad subsidies and even multiple fixed exchange rates a drag on economic vibrancy.
But the US, for all its faults, remains the shining beacon of global capitalism and the mecca of free market innovation. In objective terms, its economy is doing well, with the fastest growth in the G7 and inflation, notwithstanding the recent pain it has caused ordinary Americans, now back down to under three per cent – a far cry from the 211 per cent in Argentina when Mr Milei took office.
Then there is the question of political license. Hyperinflation and the perception of a parasitic public sector feeding off ordinary citizens meant many poor Argentines voted for Mr Milei even as he loudly vowed to end the welfare payments most of them received.
Although Mr Trump did not campaign on the cost of living, it is thought to have been a key driver of his victory over Kamala Harris. Cutting social security or putting up the cost of Medicare, as Mr Musk would likely need to do to achieve his fiscal goals, were not explicit parts of Mr Trump’s campaign.
Attempting to implement such reforms now could prove political seppuku for the Republican party. Nor is Mr Trump likely to be interested in reducing the Pentagon’s vast budget, approaching $1 trillion a year.
Finally, there is the question of whether Mr Trump even wants to cut the budget. The US and Argentine presidents share a deep enthusiasm for cultural warfare and a visceral antagonism towards “wokeism”. But the similarities end there.
While Mr Milei is a free market absolutist, whose objectives include removing each and every trade barrier in Argentina, Mr Trump is a devout protectionist. It remains to be seen, but his plans to slap tariffs even on imports from friendly countries could spark a global trade war.
If that happens it could trigger a host of problematic repercussions, including undercutting growth and putting fiscal discipline even further out of reach.
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