Donald Trump’s return to the White House and his commitment to ‘America first’ policies have reignited debates on the future of global trade, geopolitics and investment strategies. This edition of the Bulletin examines the implications of Trump’s policies, exploring how they could reshape global dynamics in an already fragile macroeconomic environment.

Economic expectations 

While the core elements of Trump’s economic strategy remain familiar – protectionism, de-regulation and a hardline stance on immigration – the timing and execution of these policies could produce vastly different outcomes for the US economy. Elliot Hentov, head of macro policy research at State Street Global Advisors, emphasised that ‘what matters is calculating the timing, sequence and magnitude of each measure to assess the ultimate growth impact’.

While these elements will have both growth-constraining and growth-boosting impacts, they may not immediately derail the US economy. Jared Franz, economist at Capital Group, suggests the US could enter a multi-year expansion period, potentially avoiding a recession until 2028. Rather than following the traditional four-stage business cycle, he notes, the economy appears to be transitioning from late-cycle to mid-cycle, sidestepping a downturn.

However, outside the US, the picture is less rosy. Mark Sobel, US chair of OMFIF, highlights structural fragilities such as lack of productivity growth, high public debt and slowing growth in major economies. Europe faces stagnating economic momentum, while China’s anticipated rebound has fallen short of expectations. Against this fragile backdrop, Trump’s policies could further exacerbate existing vulnerabilities, particularly in regions reliant on stable trade systems.

China, geopolitics and trade

Trade remains central to the new administration’s economic agenda with renewed tensions between the US and China almost inevitable. The proposed 60% tariffs on Chinese goods are likely to lead to a significant escalation, writes Zongyuan Zoe Liu, Maurice R. Greenberg senior fellow for China studies at the Council on Foreign Relations. But Beijing might be better prepared to respond this time around, as she also highlights China’s robust countermeasures, including the anti-foreign sanctions law and export control measures designed to mitigate foreign economic coercion.

Similarly, Geoffrey Yu, senior EMEA markets strategist at BNY, notes that, after the first Trump administration, China and investors are better prepared for all outcomes. From Beijing’s point of view, the past four years have seen an increase in deglobalisation, so the marginal impact of any hike in tariffs is far lower compared to 2016.

Even so, the ripple effects of trade tensions are expected to be felt globally. Udaibir Das, visiting professor at the National Council of Applied Economic Research, observes how for ‘developing countries reliant on Brics supply chains, [tariffs] may reduce trade finance opportunities and cross-border lending’. The trade tensions may also reshape geopolitical alignment, spurring closer intra-regional financial co-operation, especially among Brics countries as they look to reduce dependence on the US.

Elsewhere, relations between large Latin American economies and the US also might evolve. As Hector Torres, senior fellow at the Centre for International Governance Innovation, writes, ‘Milei has called [Mercosur] “a prison” and is pushing for a bilateral free trade agreement with the US, a move that could imply dismantling Mercosur.’ This would directly undermine Brazilian President Luiz Inácio Lula da Silva, and Trump might see weakening Lula – and by extension the Brics bloc – as a strategic win. Milei may also leverage ideological alignment with Trump to strengthen ties and secure International Monetary Fund funding and economic relief.

Reasons for cautious optimism

While trade fragmentation might be cause for pessimism, financial markets more broadly have reacted with cautious optimism. Initial reactions mirrored the ‘Trump trade’ of 2016, with equities rising, the dollar strengthening and expectations of higher growth driving investor sentiment. Massimiliano Castelli, head of strategy for sovereign institutions, and Philipp Salman, director of strategy and advice for global sovereign markets at UBS Asset Management, note that these trends reflect confidence in Trump’s pro-business stance, at least in the short term. However, they add, Trump’s stated preference for a weaker dollar to boost US exports could clash with current market dynamics. Rising geopolitical tensions may also spur diversification across currencies, further complicating the global financial landscape.

While local currency markets in emerging markets are expected to face challenges, the strength of the dollar and tariff-driven disruptions make hard currency bonds more appealing to investors, according to Nicholas Hardingham, portfolio manager, and Stephanie Ouwendijk, portfolio manager and research analyst, Franklin Templeton Fixed Income. They write that emerging market debt continues to ‘offer a compelling case for diversification and yield enhancement’. Countries with solid fundamentals, such as India and Mexico, may offer attractive returns despite broader geopolitical headwinds.

As the global economy braces for the shocks of Trump’s ‘America first’ policies, the interplay between protectionism, geopolitical tensions and financial market shifts will define the coming years. Policy-makers and investors alike must navigate these uncertainties with agility, balancing risks while seizing new opportunities.