Trump crosscurrents and the uncertainties ahead
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Illustration: Allie Carl/Axios
The biggest question marks for the 2025 outlook involve how the incoming Trump administration's policy agenda will reverberate through the U.S. and global economies.
Why it matters: The incoming administration has big plans in areas including trade policy, fiscal policy, immigration and more. These objectives are likely to create complex crosscurrents for the economy, making it hard to confidently predict how it will all net out.
- The U.S. economy was broadly stable in 2023 and 2024, with growth chugging forward, a solid but cooling job market, and downshifting inflation. 2025 looks to be a year with a wider range of possibilities.
- In converting the president-elect's campaign trail promises into policy, his appointees will face hard tradeoffs.
- The resolution of those tensions will determine the course of growth, the labor market, inflation, and interest rates over the next four years.
The big picture: In some of the most economically important policy areas, Trumpism contains internal contradictions that must be resolved.
- Are new tariffs going to be tactical and limited, meant to achieve specific strategic aims, or broadly applied and long-lasting? The result will determine how much disruption occurs in global supply chains and whether tariffs stoke inflation.
- Will Trump and the Republican Congress cut the budget deficit, as the incoming Treasury secretary seeks and Elon Musk's budget-slashing goals imply? Or will they follow the playbook of Trump's previous term of cutting taxes, keeping spending levels steady, and borrowing to cover the difference? The answer will shape interest rates going forward.
- Will the new administration's focus on tightening border security and deporting people who are illegally in the U.S. reach a sufficient scale to seriously crimp the labor supply? If so, it would mean slower GDP growth and disruptions to industries reliant on immigrant labor, like agriculture and construction.
Between the lines: Trump will hear from factions on all sides of these questions, both from inside his own administration and from business leaders and Republican lawmakers. But how they play out will depend on the whims of a president who is confident in his own instincts.
State of play: These uncertainties play out at a moment when the economy has significant momentum — which Trump's deregulatory push could help fuel.
- CEOs have become more optimistic about the outlook since the election, which could bode well for hiring and capital spending. Despite recent bumps, the stock market has remained near record highs.
Yes, but: Resilient growth and uncomfortably high inflation have led the Federal Reserve to back off its plans for further interest rate cuts this year. An up-in-the-air policy environment adds to uncertainty about what the 2025 economy will look like.
Outside the United States, the economies of some U.S. allies and adversaries alike — including Canada, France, Germany and China — are already slowing.
- The global economy is in a weaker position than it was in 2018 to contain the fallout from Trump's trade policies or any number of potential shocks.
- Central bankers are uncertain about how much further to cut interest rates — or whether they will do so at all, given still-simmering inflationary pressures.
What to watch: Across Europe, far-right populists are gaining political power and stoking political chaos that — at least, in the case of France — has led to higher interest rates.
- France has to cobble together a budget as investors revolt over widening deficits. Its parliament collapsed late last year after the far-right demanded fewer spending cuts.
- Germany will hold elections next month after its governing coalition fell apart, with swelling popularity for the Alternative for Germany (AfD) that just got Musk's endorsement.
Canada is in the grips of its own political chaos ahead of a trade war. Chrystia Freeland, the nation's finance minister who had been preparing the nation's Trump trade response, quit abruptly, and Prime Minister Justin Trudeau's political standing is tenuous.
Zoom out: China faces the harshest tariff threats of any other nation. Other countries besides the U.S. are threatening to impose tariffs of their own, citing fears that China is overproducing clean energy products and harming domestic industries.
- The Chinese government has implemented stimulus measures aimed at pulling the world's second-largest economy out of a deflationary, slow-growth malaise. What was once an engine of global growth is on shakier footing.
The bottom line: The global economy is already showing cracks that Trump threatens to widen. Ripple effects from the incoming administration's policy could hit financial markets, warp global trade patterns and reignite inflation that policymakers worked to crush.
