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Trump in front of a downward trending graph and economic indicators.
America is souring on Trumponomics. Trump may not care.
For someone who campaigned on lowering grocery prices on day one and rode widespread economic discontent to the White House, Donald Trump sure seems bent on pursuing policies that will increase that discontent.
If you don’t believe me, take it from the president himself, who refused to rule out a recession last Sunday and acknowledged that his sweeping tariff plans would cause “a little disturbance.” But, he added, “we are okay with that.”
Are we okay with that, though?
From Trump pump to Trump dump
Trump’s election victory unleashed “animal spirits” as many business leaders and investors hoped he’d follow through on his campaign promises to cut red tape and lower taxes while ignoring the more disruptive planks of his economic platform: tariff hikes and immigration restrictions. Surely much of it was posturing and bluffing, they thought, and Trump’s more extreme impulses would be checked by market-friendly advisers like Treasury Secretary Scott Bessent. In the worst-case scenario, they assumed Trump would course correct when confronted with sliding stock prices or signs of economic cracks.
Slowly but surely, they are starting to realize they got it wrong. Trump meant what he said and is less bound by constraints than during his first term. (I hate to say I told you so, but it wouldn’t have taken them so long to figure this out if they subscribed to this newsletter.)
The S&P500 has dropped by 8% over the last month (so far) as the president’s promised “golden age” of growth collided with the chaotic reality of Trumponomics. American equities are not only lower than they were before Trump’s inauguration but have erased all gains since he became the odds-on favorite to win the race in October. This represents the worst stock market performance in a president’s first 50 days since Barack Obama took office in the midst of the global financial crisis.
But it’s not just Wall Street that’s souring on Trump’s plans. Consumers, small businesses, and CEOs alike are all reporting sharp declines in confidence, largely due to record uncertainty about tariffs. Manufacturing activity is slowing, retail sales and construction spending are falling, and businesses of all kinds are paring back their investment plans as threats to the US outlook mount.
Inflation expectations are on the rise, with 60% of Americans believing Trump isn’t doing enough to bring down inflation and 68% fearing that his tariffs will lead to higher prices. Most Americans think the economy is on the wrong track and disapprove of the president’s handling of it. No wonder Trump’s net approval has taken a quick hit, his honeymoon ending faster than any other president’s save one: Trump 1.0.
It's the economic uncertainty, stupid
Businesses and investors have reason to worry.
In his first six weeks in office, Trump has made it clear that he is dead serious about building a “tariff wall” around America, not as a negotiating tool but to reshape global trade flows. The US effective tariff rate is set to rise to its highest level since the 1940s by the end of the year, raising prices for American consumers and businesses and slowing down growth. Trump has virtually closed the southern border and ramped up the pace of deportations, which will constrain the labor supply and lead to higher prices and lower growth. He has threatened to eliminate government subsidies, contracts, and grants that businesses, universities, and other organizations rely on. And he has empowered Elon Musk’s chaotic effort to purge, downsize, and capture the administrative state, threatening the delivery of critical public services, amplifying these macroeconomic shocks, and destroying US state capacity.
And yet, these first-order consequences of Trump’s policies are not the core reason why traders and boardrooms are freaking out about the outlook for the US economy. Don’t get me wrong, businesses prefer good policies to bad policies. But they can adapt to bad policies. You know what they can’t adapt to? Policies that can turn on a dime based on the president’s whims.
Maybe you agree with Trump that “trade wars are good and easy to win,” or perhaps you believe his policies will cause short-term pain but be worth it in the long run. But whatever you may think of the merits of his agenda, there’s no denying that the constant uncertainty he brings to the table is terrible for business.
Every business decision is a bet about the future. The one non-negotiable before making any investment is a bare minimum of predictability. When the rules of the game can change any day (and when they’re no longer applied impartially), the rational choice is to put off costly long-term investment plans – even if the possible payoffs are high.
That’s why the extreme policy arbitrariness, volatility, and uncertainty that characterizes Trump 2.0 – best exemplified by his on-again, off-again, on-again tariffs – is the ultimate economic dampener. Even if Trump walks back some tariffs or implements his pro-growth promises, uncertainty – by some metrics already higher than it was during the pandemic, the 2008 financial crisis, and 9/11 – will remain near all-time highs for the foreseeable future, discouraging investment, hiring, and consumption, and raising prices. Its chilling effect will compound the direct impact of the administration’s implemented tariffs, deportations, federal layoffs, and so on. As I warned in Eurasia Group’s Top Risks report, “in the long run this will risk undermining the predictability and performance of the world’s most dynamic economy, preeminent investment destination, and issuer of the global reserve currency.”
No more Trump put?
Trump seems to have no intention of backing off his plans or moderating his “move fast and break things” approach, even in the face of economic dislocation. “Markets are going to go up and they’re going to go down, but, you know what, we have to rebuild our country,” he said at the White House yesterday.
This contrasts sharply with his first term, when Trump considered the stock market a barometer of success. Back then, investors and business leaders knew they could count on the “Trump put” – the president’s tendency to curtail his most economically harmful policies when faced with financial turmoil. Now, Trump is openly saying he doesn’t care that investors believe his agenda could cause a recession and raise prices – because it might, and he’s convinced the sacrifice will be worth it for the greater good. “Will there be some pain?” he asked in February. “Maybe (and maybe not!) But we will make America great again, and it will all be worth the price that must be paid.”
So the Trump put either doesn’t exist anymore, or the threshold is significantly higher than it used to be. This makes sense when you consider the president doesn’t have to (read: can’t) run for reelection again. After being twice impeached, convicted, nearly assassinated, and taken for dead politically, the 78-year-old Trump is in a rush to cement his legacy before his “enemies” get another chance to take him down.
True, most presidents – even lame ducks – would consider avoiding a crippling economic meltdown, scoring a decent result in the midterms, and handing the reins to a same-party successor essential to a good legacy. But Trump is no ordinary president. He does not, for example, care much about the Republican Party (after all, he hasn't been a member for long). What he does care about is his own image. In that sense, he is still constrained by public opinion – or rather, his perception of it.
The key question is whether there’s anyone around him who can speak truth to power to a man who has famously little patience for being told he’s wrong. As I wrote in Eurasia Group’s Top Risks report:
Not only does the president-elect have unified government and consolidated control of the Republican Party, but he is building a more personally loyal and ideologically aligned administration than last time. His team will come into office ready to implement – rather than thwart – Trump’s agenda.
If his first 50 days are any indication, the US economy may be in for a lot more trouble until reality pierces his bubble … if it ever does. The beatings will continue until morale improves.
US Secretary of Defense Pete Hegseth arrives for his first official day at the Pentagon in Arlington, on Jan. 27, 2025.
HARD NUMBERS: Trump looks to lasers, US economy grows, Americans cool on Canadian annexation idea, Canadian researchers feel the freeze
60: The US is going back to the future with Donald Trump’s call this week to develop a system of space lasers to protect the country from nuclear attack. Under the “Iron Dome for America” plan, Trump has given Defense Secretary Pete Hegseth 60 days to develop a plan, which is to include the use of defensive space lasers – a revival of former US President Ronald Reagan’s vision of Star Wars.
2.3: The US economy showed strong growth at the end of 2024, expanding by 2.3% in the last quarter of the year. For the full year, the world’s largest economy grew 2.5%, exceeding most expert’s expectations. China, the world’s second-largest economy, grew at an official rate of 5%, though experts dispute those statistics. US President Donald Trump has promised a “golden age” for the US, but the economic impact of his proposed tariffs and massive federal budget/staffing cuts remains unclear.
16: Good news for Canada – only 16% of Americans support Donald Trump’s suggestion of annexing Canada, according to an exclusive poll by Echelon Polling, commissioned by GZERO Media. Meanwhile, 23% of respondents supported retaking control of the Panama Canal and acquiring Greenland.
40 million: The whiplashing moves of theTrump administration regarding federal funding for healthcare research (apparently frozen for review until at least Feb. 1) alongside a broader freeze on all federal grants, which was then rescinded, have rippled far and wide. Canadian researchers, who received more than US$40 million in support from the US, are now mired in uncertainty about the future of their work.
US Federal Reserve Chair Jerome Powell speaks to the media during a press conference at the Federal Reserve, in Washington, DC, on Wednesday, Jan. 29, 2025.
A tale of two central banks
North of the border, though, the Bank of Canada went ahead with its sixth cut in a row, this one a modest 25 basis points, bringing its interest rate down to 3%. The bank noted an inflation rate of about 2%, a soft labor market, and an unemployment rate of 6.7% in December – and looked ahead to a potentially rocky 2025 for the country economically, even as it expects GDP growth to pick up this year. Maybe.
Immigration rates are slowing in Canada, and the threat of Trump tariffs could drive the country into a recession and send inflation soaring. The Canadian Chamber of Commerce warns that a 25% duty alongside retaliatory tariffs would cost Canada 2.6% of GDP per year – roughly CA$78 billion, while the US economy would take a 1.6% percent hit, coming in at US$467 billion.
Should that happen, the two central banks may quickly align themselves on the need for more, perhaps steeper, rate cuts.
Container ships in front of the port of Bremerhaven.
How scared should the world be of Trump’s economic threats?
On Wednesday, President Donald Trump used his social media platform to threatenVladimir Putin with “high levels of Taxes, Tariffs, and Sanctions on anything being sold by Russia to the United States” unless he struck a bargain over Ukraine.
There’s just one problem: Russia has very little trade with the US. Americans imported just $2.8 billion in goods from Russia from Jan. to Nov. 2024, less than a tenth of the pre-war figure and less than 1% of all US imports over the same time period. The extensive sanctions already in place have hardly brought Moscow to its knees, and arguably benefited US rivals like China, Iran, and North Korea. It’s tough talk, but it’s not likely to push Putin to the table.
China is a different story. Trade with the US added up to an average of $54 billion per month in 2024, and the 60% tariffs Trump threatened to put on China on the campaign trail would cause severe damage to both economies. That may be why Trump is backing off the high sticker number and said Tuesday he is considering imposing at 10% tariffs on Chinese goods as soon as Feb. 1.
Now, 10% is a number that Beijing feels is much more manageable. China is experiencing price deflation — a really damaging phenomenon with one silver lining in that it could mean US consumers wind up paying about the same prices even if Trump hikes tariffs. The central government is also promising funds to stabilize the stock market in the face of potential tariffs and prevent investors from seeking safer shelter for their cash.
The fears are more real in Europe, where Trump threatened to impose tariffs without specifying a rate on Tuesday. Growth in the region’s most important economies is already stagnating, and even small barriers to trade with their most important partner will have serious consequences. Further economic troubles could empower far-right movements across the continent, which may suit Trump just fine. We have our eye on Germany, which will hold elections in precisely one month.
And don’t forget Canada and Mexico, which are staring down the barrel of 25% tariffs that Trump threatened on Tuesday as well. It’s creating a decidedly tense atmosphere in North America, with Canadian Prime Minister (for now) Justin Trudeau promising retaliation, which Mexican President Claudia Sheinbaum has hinted at as well.
The bottom line? You’re probably in for rising prices in the near future … unless everyone can come up with a reason for Trump to let them slide. We’re watching what Trump says when he speaks at the World Economic Forum in Davos on Thursday.
FILE PHOTO: A view of a logo during the 54th annual meeting of the World Economic Forum, in Davos, Switzerland, January 19, 2024.
Davos Dispatch: 3 takeaways & 3 things to watch
GZERO’s very own Tony Maciulis is in the Alps all week to report from the 55th World Economic Forum in Davos, Switzerland.
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Grüetzi! That means “hello” in Swiss German, and it’s the only word I know in that language. But there are people from 130 countries gathered in this little Alpine village right now, so a smile and a nod will generally get you through anything but the security line.
As we head into the third day of the World Economic Forum, conventional wisdom is that newly inaugurated President Donald Trump is dominating all the conversations here. That isn’t wrong. But it’s kind of a “Yes, and ...” as they teach you in improv.
A few notes from yesterday:
- China’s Vice Premier Ding Xuexiang made headlines with his address at the forum, though it read like a speech meant to counter an executive order on tariff hikes that hasn’t yet been issued. Instead, it felt like a preemptive strike as he warned, “Protectionism leads to nowhere, and there are no winners in a trade war.” He made a case for multilateralism on the most multilateral of stages, perhaps setting the stage for moves China will make to fill a leadership void if the US backs out of major global efforts like the World Health Organization.
- If China’s on offense, Europe is building defense. In two big speeches Tuesday, both Ukrainian President Volodymyr Zelensky and European Commission President Ursula von der Leyen laid out arguments for a stronger, more self-reliant Europe. Zelensky called for increased defense spending that could give the Continent a shot at going it alone if US support diminishes. “Europe has too often outsourced its security, but those days are gone,” Von der Leyen declared.
- And I overheard more than a few grumblings on the Promenade about the déjà vu of another US withdrawal from the Paris Climate Agreement. Trump puts America in the company of only three other countries — Yemen, Libya, and Iran. But who’s counting?
What to watch for today:
- Speaking of Iran, that nation’s Vice President for Strategic Affairs Javad Zarif is set to speak on Wednesday, as is Syria’s new Foreign Minister Asaad Hassan al-Shibani. These are two prominent moments in an agenda that has several programs focused on the Middle East.
- UN Secretary-General António Guterres will be here just days afterhe warned the world has opened “a Pandora’s box of ills” with regard to growing inequalities and protracted conflicts. (Close the box, please.)
- And our Global Stage series is set to premiere a new conversation from Davos! “The AI Economy: An Engine for Local Growth,” streams at 11 a.m. ET today. The program features Ian Bremmer, Microsoft’s Vice Chair and President Brad Smith, WTO Director General Ngozi Okonjo-Iweala, European Investment Bank President Nadia Calviño, and G42’s CEO Peng Xiao. Watchhere.
Navigating global trade during uncertain times
In a rapidly shifting geopolitical landscape, businesses are focusing on adapting to global trade uncertainties. Dr. Nikolaus Lang, global leader of the BCG Henderson Institute, shared his insights with GZERO’s Tony Maciulis during the World Economic Forum in Davos. Dr. Lang discussed the Trump administration’s cautious approach to tariffs, emphasizing the likelihood of increases in the near future. "Our point of view is that there will be tariff hikes in one way or the others. Whether this will be the magnitude that was kind of mentioned in the campaign remains open."
While the delay may provide corporations some time to prepare, he stressed the urgency for businesses to strengthen their "geopolitical muscle" by diversifying supply chains, planning for inflationary volatility, and integrating geopolitical awareness into decision-making. Despite the complexities, Dr. Lang remains optimistic about global trade growth, forecasting a 3% annual increase over the next decade. Emerging markets, particularly Southeast Asia and India, are poised to benefit significantly, offering substantial expansion opportunities. His insights underscore the need for businesses to remain agile and proactive, finding opportunities even amid disruption.
Follow GZERO coverage of Davos here: https://www.gzeromedia.com/global-stage
Will Trumponomics cause a slowdown for the US economy?
Donald Trump’s economic agenda blends deregulation, anti-immigration policies, higher tariffs, and loose fiscal policy—an approach that "cuts in multiple different directions," says Jon Lieber during a GZERO livestream to discuss the 2025 Top Risks report. Lieber says deregulation could boost productivity, while measures like deportations and trade barriers risk straining industries reliant on foreign labor and open markets. With markets pricing in optimism but key sectors facing uncertainty, the impact of Trumponomics will hinge on how far the administration goes in implementing its campaign promises in 2025 and beyond.
Take a deep dive with the panel in our full discussion, livestreamed on Jan. 6 here.
Argentina's President Javier Milei gestures during the Atreju political meeting organized by the young militants of Italian right-wing party Brothers of Italy (Fratelli d'Italia) at Circo Massimo in Rome.
Big milestone for Argentina’s radical president: Economy escapes recession
A year ago, Argentina’s eccentric, wolverine-haired, “anarcho-libertarian” president Javier MIlei took office with a chainsaw and a plan: to tackle the country’s triple-digit inflation and chronic debt problems, he would hack government spending to pieces — and it seems to be working.
Latin America’s third largest economy has emerged from recession for the first time since the third quarter of 2023, with GDP growing nearly 4% since then. Month-on-month inflation has plunged from 25% last December to just 2.4% a month ago.
How’d he do it? Since coming to office, Milei has scrapped more than half of the government ministries, slashed spending on public salaries, devalued the currency, and put pension growth in a chokehold.
The subsequent return to growth is a vindication for Milei, whose state-chopping has won him plaudits from financial markets and the International Monetary Fund. It’s also earned glowing admiration from Donald Trump who envisions a similar gutting of the US Federal government (though his protectionist impulses contrast with Milei’s purer market fundamentalism).
Milei’s approach has been painful for many. The percentage of Argentines living in poverty has surged by 13 percentage points to 53% since he took office. Milei’s bet is that this is merely short term pain. He could yet be right: experts see the economy expanding by 5% next year after contracting 3% in 2024. With mid-term elections approaching in 2025, we’ll soon learn how most ordinary Argentines feel about Milei’s methodical massacres.