'Trump 2.0' Has Set the Global Economy Spinning
The global economy is bracing for another year of challenges and uncertainties, with growth expected to hover at a “stable yet underwhelming” 3.2%, according to the International Monetary Fund (IMF). Among the many factors shaping the economic outlook, the policies of Donald Trump’s second presidency are already stirring concerns across industries and borders.
One of the most immediate impacts is felt in monetary policy. A series of interest rate cuts in the US toward the end of 2024 offered some relief to borrowers, but Federal Reserve Chair Jerome Powell’s cautious stance on further reductions signals that the fight against inflation is far from over.
Inflation rates of 2.7% in the US, 2.2% in the eurozone, and 2.6% in the UK underscore the lingering challenge of bringing price rises back to the central banks’ 2% target—a task made harder by stagnant economic growth.
A key uncertainty for 2025 lies in Trump’s proposed trade policies. As highlighted by JP Morgan’s Luis Oganes, the return to a protectionist agenda—with threats of new tariffs on trading partners like China, Mexico, and Canada—could create significant disruptions.
“The US is going into a more isolationist policy stance, raising tariffs and providing protection to US manufacturing,” Oganes explains.
While this may offer short-term support for domestic growth, it risks destabilizing global supply chains. The auto industry, for example, relies on cross-border supply chains spanning the US, Mexico, and Canada. New tariffs could raise production costs, reduce demand, and lead to job losses, warns Maurice Obstfeld, former chief economist at the IMF.
Canada and Mexico, key trading partners for the US, are particularly vulnerable. Mexico’s export-driven manufacturing sector and Canada’s political stability have already faced turbulence, as evidenced by the resignation of Canadian Prime Minister Justin Trudeau.
China, the world’s second-largest economy, is also grappling with Trump’s renewed tariffs. Exports, a cornerstone of its economic engine, face declining demand as US tariffs drive up costs for American consumers. President Xi Jinping has acknowledged the challenges posed by the “uncertainties in the external environment” but remains optimistic about domestic economic recovery.
The World Bank has upgraded its 2025 growth forecast for China to 4.5%, citing efforts to strengthen the property sector and local government finances. However, experts note that replacing China’s dominance in global supply chains will take years, even as companies diversify their production bases to reduce exposure to geopolitical risks.
Electric vehicles (EVs) remain a contentious battleground in the US-China trade relationship. China’s dominance in EV production—more than 10 million vehicles manufactured annually—has led to tariffs from the US, Canada, and the EU. Beijing is challenging these measures at the World Trade Organization, but further restrictions from Trump could intensify the trade war.
Europe is also feeling the ripple effects of US policies. As Christine Lagarde, President of the European Central Bank, recently warned, protectionist measures are “not conducive to growth” and could exacerbate inflationary pressures in the short term.
Germany and France, the traditional drivers of eurozone growth, are struggling to regain momentum amidst political instability and lackluster investment. Inflation remains stubbornly high at 4.2%, fueled by strong wage pressures and talent shortages. Without significant consumer spending and business investment, Europe risks falling further behind in the global economic race.
Labour markets reflect the broader economic malaise. Wage inflation remains a challenge in both the US and Europe, with companies passing rising costs onto consumers. Sander van ’t Noordende, CEO of Randstad, points to talent scarcity as a key driver of wage pressures, which continue to stoke inflation.
“When the economy is doing well, businesses grow, they hire, and people move around,” he explains. For now, that dynamism is missing, with businesses adopting a cautious stance amid economic uncertainty.
Donald Trump’s second presidency introduces a raft of economic policies that remain largely under wraps. Tax cuts and deregulation may bolster US growth in the short term, but JP Morgan’s Oganes cautions that “continued US exceptionalism” could come at the expense of the global economy.
While there is hope that inflation and interest rates will ease in 2025, much hinges on the policies emanating from Washington. As the IMF has noted, the world’s interconnected economy is particularly vulnerable to disruption.
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