Author: IntaCapital Swiss

On Monday 20^th January 2025 ex-President Donald Trump will once again become President of the United States of America and a new era of Trump economics will begin. There are many differing opinions on what may happen to the American economy, but one thing seems certain: tariffs on imports to the United States are back, with China seemingly getting the brunt of this policy. Many commentators are at odds with each other as to what may happen in the short, medium and the long-term of a Trump2 presidency, so what policies will really impact the economy of the United States?

Tariffs

Many analysts and economists have said that the tariffs threatened by Donald Trump (10 – 20% on all imports apart from China which is 60%) will have the biggest impact on the US economy. In his first term, the Trump administration placed taxes and duties on imports of circa USD380 Billion, and his second administration is expected to increase tariffs even more under the “America First” policy. What is also important is that, as was seen from his first administration, the President can enact tariffs all by himself without the approval of congress.* 

*Tariff Approval – The approval of tariffs was once in the hands of congress who had the constitutional right and would require legislative action. However, many years ago, congress gave up its rights to set tariffs and today a range of laws now authorise the President when certain conditions are met to impose tariffs. Under the International Emergency Economic Powers Act of 1977, the President can invoke emergency powers to impose tariffs without having them approved by congress.

The President elect has already said that tariffs or import taxes will reduce the trade deficit of the United States, whilst at the same time raise revenue and re-shore manufacturing. Some experts predict that the President elect will implement tariffs with alacrity, however, analysts predict that as a result of import duties/tariffs, inflation will rise because the higher costs now being experienced by importers will be passed on to consumers. Janet Yellen, the United States Treasury Secretary in December 2024 has been quoted as saying that the President elect’s plans to levy broad import tariffs could derail progress in quelling inflation and raise costs for businesses and households. The Treasury Secretary went on to say that Donald Trump’s tariff plans of 60% on Chinese imports and 10% – 20% on imports from elsewhere would “raise prices significantly for American consumers and create cost pressures on companies”. 

Such concerns have been dismissed by the President elect and his cohorts as downbeat projections from senior figures on Wall Street. They pointed out that until Covid-19 and the pandemic hit, the President in his first term presided over robust growth, this despite tariffs which also did not cause inflation to spike. Indeed, the CPA* (Coalition for a Prosperous America) estimated that with the promised income tax cuts combined with a universal tariff of 10% would create circa 2.8 million jobs and would add circa USD700 Billion to economic output. 

*CPA – This is the only national non-profit organisation that exclusively represents domestic producers across the United States. They are a coalition of manufacturers, workers, farmers, and ranchers, and represent the interest of 4.1 million households. Their team includes decades of government experience in congress, the executive branch, and the private sector.

Deregulation

Historically, businesses favour deregulation and are more likely to invest under a political administration that favours such an option. Indeed, Donald Trump’s goal of removing ten regulatory rules for every new one issued will create, according to some experts, hyper deregulation, which will make a positive impact on economic growth. Analysts point to the 1990’s, where a comparative study between the United States and Europe showed that stricter regulation in Europe, and especially during a period of rapid technological information, resulted in the United States having faster growth than Europe. This particular study showed that tighter regulation deterred investment whilst a more liberal attitude towards regulation boosted investment. 

The Trump2 administration will be able to reduce quickly and efficiently what is known as “Extra Regulatory Guidance” as it does not require approval from congress. However, the removal of whole government departments and agencies would take a serious amount of time and the newly formed DOGE (Department of Governmental Efficiency)is not expected to issue their recommendations until mid 2026. Experts suggest that the prospects of deregulation will more than likely encourage a “risk on” environment in the United States, which could be especially beneficial to cryptocurrencies and financial stocks.

Tax Cuts

Analysts suggest that a Trump2 administration will probably focus on his first administration’s TCJA (Tax cuts and Jobs Act) with a view to expanding and extending this act. The reason for extending the act is that if it was allowed to expire it may well encourage a fiscal drag on US growth, so it is assumed this will have a positive impact on the economy. Corporate profits are also on the Trump2 radar with plans to cut the top rate of tax from 21% to 15%. Experts have suggested that this will be more difficult to achieve because of the current federal deficit, the pressure to raise spending on defence and other areas plus the effect extending the TCJA, which has a direct effect on voting households’ budgets. 

However, economists warn that what impact that tax cuts will have on the federal deficit as the original TCJA was not fully funded (the loss of tax revenue was not offset by other tax revenues or spending cuts). Team Trump2 however, argue that deregulation and lower taxes will eventually pay for the tax cuts (albeit indirectly) as they will ignite investment, productivity, and economic growth.

Immigration

It appears that President elect Donald Trump has two planks to his immigration policy, 1. Deporting undocumented individuals already residing in the United States and 2. Basically closing and securing the southern border of the United States. 

The incoming administration has threatened to deport between 15 and 20 million people within the United States who have no proper documentation. Experts in this area report that near-term actions will focus on the circa 1.4 million individuals that have been ordered by the courts to leave the United States. There are also a backlog of court cases accounting for circa 3.7 million individuals which will be which the new administration will hope to pass through the courts as quickly as possible. 

Many commentators agree that mass deportations could have a negative effect on the economy and inflation, with adverse effects on the service sector (experiencing acute labour shortages) and the agriculture sector where an increase in pricing could be the result of deportations. Doomsdayers suggest that such a policy could lead to stagflation, higher inflation and even a recession with a slowdown in the economy and higher wage costs. However, such speculation is dismissed by the incoming administration who feel by putting America First will allow the USA to be economically and socially on the up. 

During the Trump1 administration, securing and closing the border between Mexico  and the United States was not completed, and in the Trump2 administration the President elect will be leaning on the President of Mexico to help stop illegal crossings into America. President elect Trump has already made his feelings and intentions towards Mexico exceptionally clear. Indeed, on the very last day of campaigning the then ex-President Trump advised his supporters that the Mexican President would be the receiver of one of his first telephone calls. He said he would advise President Claudia Sheinbaum that if she did not stop the onslaught of drugs, criminals and other illegals coming into the United States, he would impose an immediate tariff of 25% on everything coming out of Mexico bound for the USA. However, a number of economists have advised that closing the border will have little impact on the economy of the United States.

Final thoughts

It is difficult to predict the future, but one thing is certain: President elect Donald Trump, with his “America First” policies, will use tariffs as a weapon to try and get his own way. Furthermore, experts suggest his policies will have a dramatic effect on the regulatory and economic landscape of the United States. Elsewhere, sustainable investment (not on the list of Trump2 priorities) emerging markets and other sectors will all feel the effect of the new administration’s policies, with broader implications for environmental risks, new challenges to global trade dynamics and increased market volatility.

Part 1: India

A number of experts are suggesting that President elect Donald Trump’s second term offers a mixed bag, but a general positive outlook, for the Indian economy. Experts suggest that a Trump2 presidency may well engender deeper ties with the United States, especially in the areas of technology, pharmaceuticals, and defence. However, Donald Trump’s vow of tariffs and immigration restriction suggests that Prime Minister Shri Narendra Modi’s closeness to Donald Trump may be helpful in any upcoming negotiations. 

As President elect Trump’s inauguration approaches (20th January 2025) there will be a seismic shift in economic policy. According to analysts, India will seek to reinforce strategic ties with the United States, particularly in the defence arena in the Indo-Pacific region, which is important for their security. It is hoped that increased ties in the defence area will positively impact the defence sector through increased cooperation and investment.

Donald Trump’s drumbeat of “America First” is led by tariffs, which could have a diverse effect on India’s economy, with the possibility of increased tariffs on textiles, steel products and automotive parts. Such tariffs would have a direct effect on India’s manufacturing sector and imports into the United States, especially as in 2024 data released show India having a trade surplus with America of USD35.3 Billion, which represents a red flag to the incoming administration. 

On the currency front, experts are suggesting that under a Trump2 presidency the Federal Reserve may adopt a more hawkish outlook, due to the new administration’s economic policies. Analysts believe that these policies could have a negative impact on inflation and could strengthen the US Dollar against the Rupee, increasing costs to those Indian companies paying for imports in US Dollars. Conversely, however, a weaker rupee against the dollar will have a positive impact on the export sector with companies seeing an increased profit margin.

India stands at the crossroads with the United States, and if they strategically place themselves as a trusted and stable defence and trade partner, navigating the tariffs and immigration challenges presented by Trump2, they could very well turn these challenges into avenues for partnership and growth. If the government and businesses adapt themselves to this new scenario they should hopefully minimise risks and maximise gains especially as the President elect appears to be prioritising India to counterbalance China in the Indo-Pacific.

Part 2: Pakistan

A Trump2 presidency may, according to experts, pose a number of challenges for Pakistan, especially as uncertainty abounds in the corridors of power in Islamabad. Today, it appears that Pakistan is deemed a lot less relevant in the minds of those with power in Washington. Indeed President elect Trump views Pakistan as a haven for terrorists, and in his first term severely cut economic aid to the country. China is Pakistan’s largest trading partner and if they are to enjoy any sort of friendship with the President elect, their officials will have to walk a tight line between China (Trump2 has promised 60% tariffs on China’s exports to the USA) and the United States if they need to fulfil their security and economic needs.

However, despite these misgivings the State Bank of Pakistan recently advised that their policy of quantitative easing has supported economic growth on a sustainable basis, whilst keeping external pressures and inflationary pressures in check. Their MPC (Monetary Policy Committee) recently cut their benchmark interest rate to its lowest level for two years, with the result that inflation has eased allowing the bank to boost growth. Indeed, the State Bank lowered their target rate by 200 basis points to 13% its lowest level since April 2022. 

The Governor of the State Bank of Pakistan Jameel Ahmed recently said the “the overall situation has improved on the economic front” and that the State Bank expects inflation to fall to the benchmark target range of 5% – 7%. The State Bank has cut interest rates by 900 basis points since June 2024 with data showing inflation had hit its lowest level since late 2018. 

Elsewhere, the foreign exchange reserves rose to USD12.05 Billion according to data released on 6^th December 2026, mainly due to Pakistani expatriate remittances, which rose by 34% to USD14.8 Billion through five months to November 2024. Pakistan’s Finance Minister Muhammad Aurangzeb has announced that he expects total remittances to hit a record USD35 Billion for 2024 up USD5 Billion from close of business 2023. 

Pakistan almost went into default in 2023 but under guidance from the IMF (International Monetary Fund) have implemented tough economic measures and, in September 2024, received a USD7 Billion loan from MIGA (Multilateral Investment Guarantee Agency, a subsidiary of the IMF). However, Pakistan is loaded with external debt and as of September 2024 this stood at USD133.5 Billion with circa USD30 Billion to be repaid in 2025. Quotes from the finance ministry suggest that these loans will be rolled over or renewed, suggesting that Pakistan is not in a position to repay these loans.

Optimists beware. President elect Trump has already earmarked Pakistan as a harbourer of terrorists and the United States, as of September 2024, has a trade deficit with Pakistan of USD74.6 Billion, which puts the country within the realm of Donald Trump’s tariffs and their various economic ramifications.

President elect Donald Trump has vowed once again that in the Trump-2 presidency he will put America first and is considering tariffs on imports into the Unite States. Indeed, he recently showcased what is referred to as “Economic Statecraft”* by threatening two of the United States’ major economic partners, Canada and Mexico, with higher tariffs. In this case, tariffs are being used as an economic wall to halt/curtail the flow of illegal immigrants and cross-border drug trafficking. Furthermore, China is the biggest source of the eurozone’s imports with bilateral trade reaching Euros 739 Billion in 2023. Donald Trump is considering sticking China with 60% tariffs on all exports to the USA and may use tariffs on European countries in the eurozone as a stick to curtail imports from China. 

*Economic Statecraft – Is defined as the use of economic means to achieve foreign policy goals. 

Overview

It would appear that the slogan used by the Republicans and the then ex-President Trump in the run-up to the presidential election of “Make America Great Again”, translates into using economic statecraft to the possible economic harm and certainly disadvantage of their allies. President elect Trump has threatened tariffs on China’s exports to the USA of 60%, plus 10% -20% tariffs on all other imports. Analysts suggest that if a full trade war does indeed commence, the cost to the Eurozone in a combined total of exports is valued at circa USD36. 6 Billion in 2025 and 2026. The President elect is on record as having said the 27 nation bloc will have to “pay a big price“ for not purchasing enough American exports.

Data released by the European commission shows that in 2023, the United States imported goods from the European Union to the value of Euros503.3 Billion, representing one fifth of all non-European exports. Exports from the eurozone to the United States are led by vehicles and machinery (Euros207.6 Billion), chemicals (Euros137.4 Billion) other manufactured goods (Euros103.7 Billion), which together makes up circa 90% of the unions exports to America. Economist suggest that if tariffs are indeed put in place by the Trump administration a collapse in exports would have a detrimental effect on trade-orientated economies with the Netherlands and Germany being the likely countries to be hardest hit. 

Some analysts are even suggesting that a potential upcoming trade war could push an already sluggish Eurozone economy into a potential full blown recession. Analysts are also advising that the Euro could also fall to parity with the US Dollar (first time since late 2022) if a trade war weakens an already under pressure eurozone economy. As of November 2024, the eurozone private sector slipped into contraction, with the eurozone PMI* figures (dropped below the 50 mark) being somewhat gloomy to say the very least, and is a wake-up call for eurozone policy makers that the economy is still showing signs of weakness. 

*Eurozone PMI – This is known as the Eurozone Purchasing Manager’s Index and is a monthly survey of services and manufacturing companies in the Eurozone that measure the direction of economic trends. The PMI is a weighted average of five indices, New Orders (30%), Output (25%), Employment 20%), Suppliers Delivery Times (15%), and Stocks and Purchases (10%). This index ranges from 0 to 100 and anything above 50 indicates an increase, and anything below 50 indicates a decrease. 

In other areas, the elevation of President elect Trump to his second stint in the White House will experts believe, put pressure on the eurozone countries to spend more on defence. Apart from the trade surplus the Eurozone enjoys over the United States, what also rankles with the President elect is that the combined eurozone spending on NATO is only 1/3 of what the USA spends, and noises emanating from team Trump suggest that the United States will expect an increase in defence spending.

Indeed, just USD326 Billion was budgeted by EU governments for defence spending in 2024. Back in 2017, an increase in spending on defence equipment by 35% was budgeted by the European Union, however today only 17% or just under 50% of that figure has been achieved. Furthermore, analysts suggest that the President elect will demand that the EU countries spend at least 2 – 2 ½ %, possibly as much at 3%, of GDP on defence, and it is suggested that countries such as Spain who only spend circa 1.4% of GDP are in his bad books.

Eurozone

Donald Trump’s first presidency was marked by its transactional nature, and he ranked world leaders by his perceived weaknesses and strengths, and in some case his personal taste. The European Union has 27 states and below is an overview of the Trump effect on some of their bigger economies.

1. Germany

In Q3 of 2024, the German economy narrowly avoided a recession, and with ex-President Donald Trump being re-elected to the White House the current outlook for the German economy is unfavourable to say the least. The incumbent Chancellor of Germany Olaf Scholz made it quite clear that he was supporting Kamala Harris’s bid for the White House, so it will come as no surprise that President elect Trump will have him and Germany in his sights when it comes to tariffs.

Experts are suggesting that the election of Donald Trump to the White House marks the start of what is possible the most difficult economic moment in the history the Federal Republic. Recently Chancellor Scholz fired his Finance Minister Christian Lindner, (leader of the Free Democratic Party, FDP) his coalition partner, and in one fell swoop bringing to an end the ruling coalition, rendering the government a lame duck. This should help Donald Trump once he is inaugurated on 20^th January 2025 as German elections are slated for March later that year so the imposition of tariffs may be difficult to fight or get agreement on other issues favouring the United States.

The Germany economy could be in for a bit of a bruising come 2025. If Donald Trump does implement his tariffs, experts suggest the cost to economic output could be circa 1%, and with the German economy predicted to grow by zero percent in 2025, this is bad news all round. Furthermore, some experts are predicting that the German economy (dependent on exports) could shrink by as much as 1.5% in 2027 and 2028. 

Total exports to the United States from Germany in 2023 were valued at USD171.65 Billion, the most important of which were:

1. Vehicles: USD36.76 Billion
2. Machinery, Nuclear Reactors and Boilers: USD34.4 Billion
3. Pharmaceutical Products: USD USD27.51 Billion
4. Electronic Equipment: USD17.1 Billion
5. Optical. Photo, Medical Apparatus, Technical: USD12. 67 Billion.

Germanys trade surplus with the United States has been rising since 2020, and data released showed it reached record levels in 2023 of €63.3 Billion. However, analysts have advised that if tariffs are levied between 10% – 20%, exports to the USA could drop by as much as 15%, and Donald Trump with his slogan “America First” will definitely have Germany in sights.

2. France

Ironically, the re-election of Donal Trump as the 47^th President of the United States of America, will strengthen French President Macron’s resolve to build a more autonomous Europe. President Macron is also perceived out of all the European leaders to have at least a half decent relationship with President elect Trump (apart from Premier Victor Orban of Hungary who is deemed to be closer). However, France is in both political and economic turmoil, with Marine Le Pen having brought down Prime Minister Barnier’s government and possibly pushing President Macron into resigning, plus a budget deficit of 6% of GDP and a Debt to GDP Ratio* of 112%.

*Debt to GDP Ratio – This is a metric that compares a country’s public debt to it Gross Domestic Product (GDP). It is a reliable indicator of a country’s ability to repay its debts by comparing what the country owes with what it produces. 

Total exports by France to the USA in 2023 was USD45.54 Billion, (just under 25% of what Germany exports to the USA) the most important of which are:

1. Machinery Nuclear Reactors and Boilers: USD8.3 Billion
2. Beverages Spirits and Vinegar: USD4.11 Billion (wine circa USD2.25 Billion/ Euros2.14 Billion)
3. Pharmaceutical products: USD4.04 Billion
4. Aircraft and Spacecraft: USD3.97 Billion.

Estimates vary, but one thing is certain, a Trump tariff imposed on French exports to the USA will be particularly damaging to the economy at this time. In 2019, the scope of tariffs were limited to France Germany and Spain, as they were the three counties involved in the Airbus consortium and was part of a dispute on aviation between the European Union and the United States. 

Elsewhere, the French wine industry is still scarred from the harsh 25% tariff imposed between October 2019 to March 2021, and producers are wondering what minefields lay ahead in the export arena to the United States. Interestingly, Trump himself is a wine producer, so the industry may well expect a tariff of a minimum of 10%. 

In light of the present economic and political debacles, plus the fact that France is spending under 2% on defence (expected to exceed 2% by 2029), President Macron can only hope he will retain sufficient authority to negotiate an equable deal with President elect Donald Trump.

3. Spain

Experts are suggesting that a Trump administration could have both positive and negative effects on the Spanish economy. In many eurozone countries, vehicles, machinery, pharmaceutical goods expect to be at the top of a Trump administration tariff hit list. However, Spain is fearful for its olive oil industry as it may take a significant hit as it did in Donald’s Trump’s first administration. In 2017, the Trump administration levied tariffs on Spanish olives, the reason being subsidies directed at Spanish olive producers through CAP (Common Agricultural Policy) would cause harm to American producers of the same. The tariffs were between 30% and 44% on Spanish black olives being anti-subsidy and anti-dumping duties. 

Spain is the largest olive oil producer in the world and currently their largest export market is the United States, which as of 2023 accounted for 15.7% of Spain’s total olive oil exports. Over the last five years, data released shows that Spanish table olives resulted in a loss of Euros260 Million (USD273 Million) due to tariffs being imposed in President Trump’s first administration, so a second set of tariffs could be a financial disaster for the industry. Elsewhere, the three top exports from Spain to the USA are:

1. Machinery Nuclear Reactors and Boilers: USD2.96 Billion
2. Mineral Fuels, Oils Distillation Products: USD1.96 Billion
3. Electrical and Electronic Equipment: USD1.82 Billion.

On the positive side, Donald Trump’s policies have encouraged capital outflow and foreign investment in foreign countries, with a stable real estate market. Spain is ideal due to its rich culture, a desirable location and attractive property prices, and this could definitely interest US investors looking to diversify their portfolios. A strengthening dollar could see a surge in US tourism with Spain already being a favoured destination for American tourists. 

Donald Trump’s mantra of ‘America First’ means he is always open to deals that favour the USA, so Spain could renegotiate trade deals, but there is one blip on the horizon apart from tariffs. Spain only spends 1.24% of GDP on defence and this, everyone knows, presses all of Trump’s buttons. Spain may well be forced to up their defence expenditure in order to gain concessions on tariffs.

4. Hungary

Hungary is mentioned on this list as their Premier Victor Orban enjoys a cordial relationship with Donald Trump, and whilst Orban voices his approval of Russian leader President Putin, Donald Trump is certainly fascinated by him. Indeed, when many of the leaders in the European Union were condemning Orban for his pro-Russian stance Donald Trump was heaping praise on him.

However, when it comes to the economy on Hungary,  experts suggest that Trump-2 administration could spell bad news, where his economic policies could add to inflationary risks due to a weak currency (Forint). The economy of Hungary is very “open” economy and is particularly linked to the European auto sector which, in the event of tariffs, could put the Forint under renewed pressure, thereby precluding future rate cuts. Hungary also has very close ties to China, and back in April 2024 borrowed €1 Billion from Chinese Banks to finance energy and infrastructure projects. On top of that, in September 2024 Premier Orban announced that Chinese firms had pledged €9 Million of investment in Hungary.

How the China link will play out with President elect Donald Trump, who is an obvious supporter of Orban, time will only tell. There are many imponderables with Hungary, but due to their personal relationships these problems may well be sorted out on a person to person basis.       

Final thoughts

There are, as mentioned previously, 27 member states in the European Union, and their President Ursula von der Leyen, who is in her second term, must keep the union unified in the face of the policies which will be emanating from the White House post 20^th January 2025. The President may well find this difficult because, as in President elect Donald Trump’s first administration, many Eurozone countries beat a path to the door of the US administration hoping to find favour with President Trump and do their own bilateral deals. It is felt the same will happen the second time around. 

Whilst the European Commission has sole responsibility for trade deals for all members, there are smaller options that countries can negotiate with Washington. Furthermore, Trump may pick out Germany and France for special tariff consideration as they are the two biggest economies in the eurozone (and therefore have the biggest influence within the union), plus they both have their own current economic and political problems. Imposing or threatening to impose tariffs on these two countries could be the economic dark cloud that brings the EU in line regarding defence spending. The leaders of the European Union, and their prime ministers and presidents, will be waiting with bated breath as to what President Trump will decide come his ascension to the White House for the second time.