Trump 2.0′ looms large over the global economy

Inflation, interest rates and tariffs mean 2025 is shaping up to be an intriguing year for the global economy. One in which growth is expected to remain at a “stable yet underwhelming” 3.2%, according to the International Monetary Fund. So what might that mean for all of us?
Exactly a week before Christmas there was a welcome gift for millions of American borrowers – a third interest rate cut in a row.

However, stock markets fell sharply because the world’s most powerful central banker, US Federal Reserve chair Jerome Powell, made clear they shouldn’t expect as many further cuts in 2025 as they might have hoped for, as the battle against inflation continues.
“From here, it’s a new phase, and we’re going to be cautious about further cuts,” he said.
In recent years, the Covid pandemic and the war in Ukraine have led to sharp price rises around the world, and although prices are still increasing the pace has slowed markedly.
Despite that, November saw inflation push up in the US, eurozone and UK to to 2.7%, 2.2% and 2.6% respectively. It highlights the difficulties many central banks face in the so-called “last mile” of their battle against inflation. Their target is 2%, and it might be easier to achieve if economies are growing.
However, the biggest difficulty for global growth “is uncertainty, and the uncertainty is coming from what may come out of the US under Trump 2.0”, says Luis Oganes, who is head of global macro research at investment bank JP Morgan.
Since Donald Trump won November’s election he’s continued to threaten new tariffs against key US trading partners, China, Canada and Mexico.

“The US is going into a more isolationist policy stance, raising tariffs, trying to provide more effective protection to US manufacturing,” says Mr Oganes.
“And even though that is going to support US growth, at least in the short term, certainly it’s going to hurt many countries that rely on trade with the US.”
New tariffs “could be particularly devastating” for Mexico and Canada, but also be “harmful” to the US, according to Maurice Obstfeld, a former chief economist at the International Monetary Fund, and a previous economic advisor to President Obama.
He cites car manufacturing as an example of an industry that “depends on a supply chain that is spread across the three countries. If you disrupt that supply chain, you have massive disruptions in the auto market”.
That has the potential to push up prices, reduce demand for products, and hurt company profits, which could in turn drag down investment levels, he explains.
Mr Obstfeld, who is now with the Peterson Institute for International Economics, adds: “Introducing these types of tariffs into a world that is heavily dependent on trade could be harmful to growth, could throw the world into recession.”
The tariffs threats have also played a role in forcing the resignation of Canada’s Prime Minister Justin Trudeau.