Donald Trump has claimed a second term in the White House, riding a wave of populist fervour and a promise to torch the sacred doctrines of economic and foreign policy elites. Free trade? Dead. Protectionism? In. Debt concerns? Irrelevant. Tax cuts? Essential. The U.S. security guarantee? Gone. Defence on a subscription model? Welcome aboard.
The establishment that Trump seeks to dismantle hasn’t exactly covered itself in glory. Under President Joe Biden, inflation in the U.S. soared to nearly 10%, partially fueled by excessive fiscal stimulus. Decades of free-trade orthodoxy hollowed out American manufacturing, and the wars in Ukraine and Gaza exposed Washington’s eroded leadership in global affairs.
Despite Trump’s fiery rhetoric, any administration—even one with Washington experience—faces the snail’s pace of bureaucracy. For now, Bloomberg data projects global growth of 3.1% in 2025, a modest improvement in 2024, while inflation is expected to slow to 3.4% from 6%. Yet, the global economy and financial markets are bracing for tremors from Trump’s policy dynamite.
Economists often agree on little but agree on the benefits of trade. Trade boosts productivity, growth, and incomes by encouraging competition and specialisation. It also helps developed nations keep inflation in check by giving consumers access to cheaper goods from countries like China and Mexico. Yet, Trump’s worldview, shaped by advisors like Robert Lighthizer, rejects this. Instead, it’s protectionism for the heartland, where shuttered factories tell tales of despair.
Lighthizer’s 2023 book, evocatively chronicling the decline of his Ohio steel town, champions tariffs as a remedy for America’s economic malaise. Trump has promised to impose 60% tariffs on China and 20% on other trading partners. Economists have warned that such measures could stoke inflation and hit U.S. GDP hard. But judging by Trump’s first term, the reality may be less dramatic: tariffs are likely to be targeted and phased in, cushioning their impact—at least initially.
Even if the worst-case scenario is avoided, shifting from free trade to protectionism remains a blow to the global economy. Trump’s tariff zeal threatens everything from Apple’s supply chains in Asia to General Motors’ Mexican-made cars.
Meanwhile, fiscal responsibility is another economic dogma now in question. Biden’s fiscal policy already took risks, with a 2024 deficit nearing 7% of GDP due to pandemic-era stimulus. Trump promises to up the ante, touting tax cuts to ignite growth, tariffs to reclaim lost revenue, and spending cuts to balance the books. But slashing public expenditure is easier said than done—most U.S. spending is tied up in untouchables like defence, Social Security, and Medicare. Trump’s plans risk bloating public debt further, which already stands at nearly 100% of GDP, up from 79% in 2019.
Markets are already punishing Washington’s fiscal indiscipline. Yields on 10-year Treasury bonds have risen sharply, putting upward pressure on borrowing costs worldwide. If Trump pursues massive unfunded tax cuts while extending his first-term reductions, debt markets could respond with even greater volatility.
On foreign policy, Trump’s second term could reshape global security—and not in a reassuring way. His “America First” mantra signals a withdrawal from Pax Americana, the post-WWII order underpinned by U.S. guarantees. For Ukraine, Trump’s promise to end the war in 24 hours suggests a deal tilted towards Moscow. For Taiwan, his transactional approach casts doubt on U.S. support for this vital semiconductor hub. NATO allies, already strained by debt, face his demand to pay more for their defence or face abandonment.
Trump’s policies may seem intuitive to his base. Protect American jobs? Check. Cut taxes? Absolutely. Make allies pay their fair share? Long overdue. Yet the execution is fraught with contradictions. Massive tariffs could stifle growth and fuel inflation. Slashing taxes with credible offsets could improve the fiscal imbalance. And forcing allies to shoulder more defence costs risks destabilising already fragile global alliances.
Scott Bessent, Trump’s Treasury pick, may serve as a voice of reason, tempering the administration’s more radical impulses. The S&P 500 and Treasury yields will undoubtedly act as guardrails, forcing course corrections if markets revolt. History suggests that Trump’s promises—such as 60% tariffs—are often tempered by political and economic realities.
Yet, the broader consequences of abandoning free trade, fiscal responsibility, and America’s global security commitments are undeniable. These pillars have long underpinned prosperity in the U.S. and stability worldwide. Trump, with his populist defiance of economic orthodoxy, is betting the house on a new path. Only time will tell if it leads to renewed American greatness—or leaves a legacy of diminished power and opportunity squandered.