What the global elite got wrong about Trumponomics
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Illustration: Brendan Lynch/Axios
Six months ago, the world's top finance officials worried that President Trump's policies, and the uncertainty he stoked, would cause the global economy to grind to a halt.
- Now they see the tariff shock as something the world economy can largely withstand, even if they see more shoes likely to fall on inflation.
Why it matters: It still adds up to a brighter mood among the economic policy elite, even if they continue to warn of risks ahead.
- So far the global economy is adjusting to the Trump era — and the whirlwind shift in trade dynamics — better than finance officials expected.
The big picture: The fundamental misunderstanding among top officials was how "we would move from tariffs being announced to tariffs being manifest in economic activity," Citigroup global chief economist Nathan Sheets told Axios on the sidelines of the annual International Monetary Fund and World Bank Group meetings.
- "It's much more gradual, incremental, and there are more margins for adjustment than we thought," Sheets, a former Fed and Treasury official, says.
- "We should have known this — there are seasonal and annual pricing cycles," Sheets says. "Many firms are not geared to just raise prices on an ad-hoc basis."
- In many industries, he notes, it's customary to readjust pricing annually or seasonally. So customers might have been shielded from tariff-related price hikes for now, but that could change in 2026.
Yes, but: "The trade war didn't really happen," IMF director Kristalina Georgieva said at an event hosted by the Group of 30 — a gathering of central bankers and economists — on Saturday.
- "We have a major change in trade policy with the United States, but the rest of the world has chosen not to retaliate," Georgieva said, adding that "the trade story is not as terrible as we hear."
- Georgieva said that many countries now realize that what they "took for granted ... that helps us do better, we should work for."
Reality check: The U.S. economy is not out of the woods. AI investment is powering growth and putting downward pressure on hiring, and tariff-related effects might not be helping.
- "There is a thought that if the firms are absorbing it, somehow it means there aren't any economic effects — and that's not right," Sheets says.
- "Firms are going to seek to defend their [profit] margins. They are trying to reduce cost, and that may be one factor driving the softness in the labor market," Sheets adds.
The bottom line: "Financial markets in particular — but the economy, secondarily — are willing to give the Trump administration a little more latitude in terms of operating style than people were expecting in April," Sheets says.
- "The U.S. crowd is more understanding of how Trump operates. But his approaches and his style doesn't always translate well into other countries," he says.
