As President-elect Donald Trump prepares for his second term in office, the global economy braces for a wave of uncertainty. His return to the White House on January 20 comes amid an already challenging economic environment shaped by inflationary pressures, uneven growth, and fragile geopolitical dynamics. The implications of Mr Trump’s protectionist policies, particularly his threats of new tariffs on China, Canada, and Mexico, signal a turbulent year ahead for international trade and economic stability.
At the core of Mr Trump’s economic agenda lies an inward-looking approach that prioritises US manufacturing through tariffs and deregulation. While these measures may stimulate certain domestic industries in the short term, they risk fracturing global supply chains that have been decades in the making. The automobile industry, for instance, relies heavily on cross border cooperation among the US, Canada, and Mexico. Imposing higher tariffs on these partners could disrupt production, inflate costs, and suppress consumer demand, creating ripple effects that harm all three economies. China, already grappling with domestic challenges such as weak consumer spending and a struggling property sector, stands to lose further ground under heightened US trade barriers.
Though Beijing has expressed optimism about its economic trajectory, any additional tariffs could exacerbate its reliance on domestic demand, limiting its ability to drive global growth. Notably, the World Bank has highlighted the need for China to address its internal vulnerabilities, such as improving local government finances and social safety nets, to sustain recovery. Europe, too, finds itself on uncertain footing. The euro-zone’s growth remains tepid, hindered by political instability in key economies like Germany and France. With inflationary pressures persisting and wage growth driving up costs, the European Central Bank has limited room to manoeuver. Any escalation in US-China trade tensions could further strain Europe’s export-driven industries, particularly in sectors like electric vehicles, which are already entangled in tariff disputes with both the US and China.
For the US, Mr Trump’s economic policies could yield mixed re sults. His proposed tax cuts and deregulation might provide a temporary boost to growth, but the inflationary consequences of tariffs and disrupted supply chains could offset these gains. Moreover, his isolationist stance risks alienating key allies and undermining the multilateral frameworks that have historically supported global economic stability. As Mr Trump’s inauguration approaches, the international community must prepare for a potential reordering of economic priorities. The risks of recession, prolonged inflation, and geopolitical tensions loom large. While Mr Trump’s policies may reinforce US exceptionalism in the short term, they carry the potential to destabilise the interconnected global economy. Navigating this uncertain landscape will require unprecedented levels of cooperation and adaptability among nations, even as they contend with the challenges of a more fragmented and unpredictable world order. Beyond the immediate economic shifts, Mr Trump’s policies could further strain international relations, forcing allies and rivals alike to reassess their trade and diplomatic strategies in an increasingly protectionist global landscape.