Trump’s victory will play an important role in the economic landscape for 2025, not only for the US but for the rest of the world as well. While the Republican sweep could bolster momentum for the US economy, it will probably hinder growth in other regions, further extending the divergence between the US and Europe seen in 2024. However, the degree of disparity remains uncertain and will depend on the timing of Trump’s campaign promises and to what extent they are implemented.
Before the elections, Trump outlined the policy changes he would carry out, including sweeping tax cuts, broad-based deregulation, a sharp increase in tariffs on all imports (particularly on Chinese products), the deportation of millions of undocumented migrants and a clamp down on federal spending. Broadly speaking, most of these policies are destined to have a positive impact on US growth. Tax cuts leave more money in the consumers’ pockets to spend and give companies more resources to invest. Deregulation will also provide a boost to growth as it will reduce compliance costs and generally make it easier to get things up and running.
However, the scope and sequence of these new policies are difficult to predict. For one, the Republicans’ slim majority in Congress could lead to some policies being diluted before gaining approval. Secondly, Trump’s bark can be worse than his bite, and for good reason. Many believe that threats of a 60% tariff on goods from China and a 20% tariff on everything else might prove to be a bargaining tool rather than a firm strategy. Trump wants to protect domestic industries by making imports more expensive and encouraging consumers to choose domestic products, but the strategy could backfire, depending on the response of the targeted countries.
Furthermore, some policies could have controversial effects on the economy if implemented. Broad-based deportations, for instance, would be negative for growth. They would reduce overall consumption and also be very costly to implement. Moreover, many of the jobs held by undocumented migrants would be left unfilled, creating bottlenecks and supply disruptions.
Across the Atlantic, the economic picture seems more certain but not so bright. Germany continues to struggle due to its weak competitiveness, France is having to consolidate its public finances sharply while navigating a political conundrum, and Italy must also reduce its fiscal deficit. Now, with the added threat of higher tariffs, the economic performance gap with the US will likely widen.
The Eurozone is facing structural problems which are hard to resolve. Mario Draghi, the former Italian Prime Minister and former President of the European Central Bank, warned in his report on the EU economy and competitiveness that the European Union faces lasting sluggish economic growth. Draghi highlighted three ways ‘to reignite growth’: Closing the innovation gap with the US and China in key technologies; seizing opportunities from the ongoing global decarbonisation process; and securing supply chains from geopolitical dependencies that risk turning into vulnerabilities. However, these are all long-term solutions that will take time to implement.
Ultimately, there are still numerous question marks surrounding Trump’s policies and economists may need to adjust their outlook in the coming months as more details emerge and the global response takes shape.. Nonetheless, going into 2025, it is probably safe to say that the outlook for the US appears more positive than for Europe.
Trump’s victory will play an important role in the economic landscape for 2025, not only for the US but for the rest of the world as well. While the Republican sweep could bolster momentum for the US economy, it will probably hinder growth in other regions, further extending the divergence between the US and Europe seen in 2024. However, the degree of disparity remains uncertain and will depend on the timing of Trump’s campaign promises and to what extent they are implemented.
Before the elections, Trump outlined the policy changes he would carry out, including sweeping tax cuts, broad-based deregulation, a sharp increase in tariffs on all imports (particularly on Chinese products), the deportation of millions of undocumented migrants and a clamp down on federal spending. Broadly speaking, most of these policies are destined to have a positive impact on US growth. Tax cuts leave more money in the consumers’ pockets to spend and give companies more resources to invest. Deregulation will also provide a boost to growth as it will reduce compliance costs and generally make it easier to get things up and running.
However, the scope and sequence of these new policies are difficult to predict. For one, the Republicans’ slim majority in Congress could lead to some policies being diluted before gaining approval. Secondly, Trump’s bark can be worse than his bite, and for good reason. Many believe that threats of a 60% tariff on goods from China and a 20% tariff on everything else might prove to be a bargaining tool rather than a firm strategy. Trump wants to protect domestic industries by making imports more expensive and encouraging consumers to choose domestic products, but the strategy could backfire, depending on the response of the targeted countries.
Furthermore, some policies could have controversial effects on the economy if implemented. Broad-based deportations, for instance, would be negative for growth. They would reduce overall consumption and also be very costly to implement. Moreover, many of the jobs held by undocumented migrants would be left unfilled, creating bottlenecks and supply disruptions.
Across the Atlantic, the economic picture seems more certain but not so bright. Germany continues to struggle due to its weak competitiveness, France is having to consolidate its public finances sharply while navigating a political conundrum, and Italy must also reduce its fiscal deficit. Now, with the added threat of higher tariffs, the economic performance gap with the US will likely widen.
The Eurozone is facing structural problems which are hard to resolve. Mario Draghi, the former Italian Prime Minister and former President of the European Central Bank, warned in his report on the EU economy and competitiveness that the European Union faces lasting sluggish economic growth. Draghi highlighted three ways ‘to reignite growth’: Closing the innovation gap with the US and China in key technologies; seizing opportunities from the ongoing global decarbonisation process; and securing supply chains from geopolitical dependencies that risk turning into vulnerabilities. However, these are all long-term solutions that will take time to implement.
Ultimately, there are still numerous question marks surrounding Trump’s policies and economists may need to adjust their outlook in the coming months as more details emerge and the global response takes shape.. Nonetheless, going into 2025, it is probably safe to say that the outlook for the US appears more positive than for Europe.
Date of report: January 8th 2025