Populism, sweeping tariffs and the wider demise of trade rules are only the start. As the unpredictable president’s second term continues, the US threatens globalisation while China champions it.
The first 100 days of President Donald Trump’s second term in office may be among the most tumultuous in the history of the global economy. From launching the Department of Government Efficiency (DOGE), run by Elon Musk, to initiating a sweeping global trade war, his return to power has been marked by surprises, confounding allies and adversaries alike.
Typically, a president’s first 100 days are spent carefully and meticulously laying out policies, but not Trump. He pushed the pedal to the metal right away, suggesting that Canada become the 51st state and that the US should "take" Greenland and the Panama Canal and "own" Gaza to convert it into a 'Riviera of the Middle East'—statements that spooked countries around the world.
Meanwhile, at home, things haven't been great either. Figures released by the Commerce Department on Wednesday showed that the US economy shrank between January and March, marking its worst performance in three years. Of course, Trump blamed the poor performance on his predecessor, but in reality, the 0.3% contraction is sharply down on the solid 2.4% rate of growth measured over the previous three months when Joe Biden was president.
Here, Al Majalla takes stock of Trump's economic policies in the first three months of his second presidential term.
'Liberation Day' backfires
On 2 April, Trump shocked the world with his announcement of swingeing trade tariffs on a range of nations. He called it "Liberation Day", unveiling levy increases for approximately 60 countries, including some of America's closest allies.
The latest figures show the US economy shrank between January and March in its worst performance in three years
The goal behind the tariffs was ostensibly to put "America First" by bringing production and manufacturing back to US soil and creating jobs. This line of thinking did resonate with many—especially Trump's supporters. However, the US had not taken the necessary steps to prepare its economy for the significant upheaval the tariffs would cause for businesses and consumers alike, and quickly found itself on the back foot.
As initial market optimism following his promises to support businesses and cut taxes dissipated, growth forecasts turned negative, as evidenced by the International Monetary Fund's recent projections.
Trump tariffs set to slow economic growth worldwide
The blowback led to Trump freezing global tariff increases on all countries except China for 90 days. The world will be waiting with bated breath to see what his next move is come 9 July when the pause is set to expire.
Regardless of what he decides, much damage has already been done. The economic uncertainty caused by Trump's tariffs has led to record-breaking drops in financial markets, stocks, and cryptocurrencies, alongside a meteoric rise in gold prices. Markets remain on edge amid Trump's erratic and oscillating decisions.
Allies recoil, foes up the ante
Meanwhile, Trump has put once-close allies and trade partners on the defensive. His threats to renegotiate the United States-Mexico-Canada Agreement (USMCA) have placed America's historic alliances in serious jeopardy.
For its part, China has shown that it is not afraid of a showdown with the US. After US trade levies on most imports from China were raised to 145%, Beijing retaliated with duties of its own, at 125% on US goods. "If the US continues to impose tariffs on Chinese goods exported to the US, China will ignore it," an official Chinese statement said.
Beijing has also sent clear messages to countries considering cutting trade deals with the US that such pacts could affect their relationship with China. It has also not shied away from using its vast mineral wealth—critical in the production of computer chips needed to power artificial intelligence—as leverage. It upped the ante by banning the export of rare earth metals to the US, which it relies on for 80% of its defence and technological industries.
US Treasury Secretary Scott Bessant (l) and Ukraine's First Deputy Prime Minister Yulia Svyrydenko (r) sign the natural resources deal
In response, Trump managed to finally seal a minerals deal with Kyiv after months of deliberation. It would give the US access to Ukraine's rare earth minerals in exchange for establishing an investment fund in the country.
Fears of global recession
The question after 100 days is whether Trump can transform his promises and decisions into sustainable policies. If successful, the US could see a growth spike. However, if he fails, this could lead to a US recession, which could then spark a global one.
Meanwhile, extended tax cuts and new exemptions are expected to add approximately $4.6tn to the national deficit, according to MarketWatch. Household losses are projected to reach $3,800 per family, as per Yale University's Budget Lab, due to a 2.3% short-term price increase resulting from tariffs.
Capital Economics anticipates that the tariffs will reduce both imports and exports by about 5% starting mid-2025, leading to an economic slowdown.
A deliberate weakening of the dollar?
Then, there is the so-called "Mar-a-Lago Accord"—a blueprint for a potential radical 'America First '- style currency policy—that is being considered. It is similar to the Plaza Accord of 1985, which helped devalue the dollar to make US exports more competitive. The plan reportedly stipulates that the US could provide military security to countries in exchange for their help in an organised devaluation of the dollar and their backing of US industries and products.
Needless to say, the plan has sparked a firestorm of criticism, with many worried about the implications for the dollar, its status as a reserve currency and the long-term financial sustainability of the US and other nations.
Reporters raise their hands to ask questions of Federal Reserve Bank Chair Jerome Powell during a news conference at the bank's William McChesney Martin building on March 20, 2024 in Washington, D.C.
Taking a stand
Meanwhile, the most senior central banker in the US, Federal Reserve Chairman Jerome Powell, has resisted pressure from the White House to cut interest rates to boost the domestic economy. Instead, he has reaffirmed the Fed's independence and its primary mandate to adhere to the official benchmark for the cost of borrowing, which helps control inflation.
The Fed's official target for inflation is 2%, as measured by the Consumer Price Index. The CPI is currently at 2.4%, having been nearer to 3% than 2% for much of 2024. Capital Economics predicts it could reach around 3%.
Within the Trump administration, no one has been able to temper the US president's more extreme impulses. Most are newcomers to government work, except for Jamieson Greer, the US trade representative, and Peter Navarro, a White House adviser and staunch supporter of tariffs. The leading proponent of tariffs, however, is Commerce Secretary Howard Lutnick, who says tariffs will create millions of American jobs, even as some industrial companies blame them for layoffs.
For his part, Scott Bessent, the treasury secretary, has emerged as the more moderate voice, insisting that Trump's 'Liberation Day' tariff roll-out was simply a negotiation strategy, despite Navarro, Lutnick, and others stating the opposite. Bessent has been tasked with negotiating new trade deals with countries around the world.
The end of globalisation?
The global economy admittedly wasn't in its best state before Trump's return to power, but now finds itself teetering on the edge. Amid declining US growth prospects and rising protectionism, retaliatory measures could threaten supply chains and economies heavily reliant on exports. This uncertainty and chaos have people wondering if the era of globalisation is reaching its end. For its part, the World Trade Organisation (WTO) appears to have lost much influence, with the new economic climate effectively paralysing its ability to function properly.
If the White House's policies, Trump's negotiation tactics, and economic manoeuvres fail, Washington may prove itself to be an enemy of the free global trade system as Beijing steps forward to defend it, in an ironic reversal of roles.
