Since winning the US election in November, it has been clear that the second Trump administration has no intention of treading lightly. In the weeks following his inauguration, we have already witnessed a flurry of dramatic new policies being swiftly implemented, spanning foreign policy, government efficiency, and energy production. From “drill, baby, drill” to the introduction of tariffs, President Trump is clearly set on charting a path distinct from past administrations, including that of his own first term.
The consequences of these changes have already become evident. Over the past few weeks, markets have experienced notable shifts. American investor and consumer confidence has waned, and companies across the globe are reassessing their investment strategies in response to the uncertainty generated by this new direction.
Looking ahead, global markets face three notable challenges under the Trump administration:
- US Protectionism
- US Deregulation
- Global Economic Disruption
US Protectionism, currently most visible through tariffs, threatens to reverse the trend of globalization that has dominated global economics for decades by encouraging American consumers to prioritize domestic products. This could diminish demand for foreign goods, particularly from markets that have traditionally been major trading partners with the US. As non-US companies comply with tariffs, both US buyers and international sellers face heightened regulatory obstacles, with the burden expected to disproportionately affect foreign companies.
US Deregulation is designed to foster economic liberalism by reducing regulatory burdens on businesses and encouraging risk-taking in pursuit of higher rewards. The hope is that this should boost investment, spur economic activity, and eliminate wasteful bureaucracy. The practical outcome could be an influx of investment into the US, potentially siphoning capital from other markets. In response, other nations may embark on their own deregulation efforts, which could benefit their markets in the short term but create long-term uncertainty around the stability of global economic systems.
Global Economic Disruption is a significant risk as US protectionism and deregulation create shifts in consumer behaviour and has the potential to weaken the economies of the US’s rivals, particularly China. While some opportunities may arise from these disruptions, the global economy could equally face a downturn, according to certain economic forecasts. This comes at a time when many countries are already grappling with persistently high interest rates — rates that have been elevated to combat inflation. These higher interest rates raise the bar for investment returns, creating yet another challenge for financial firms to navigate. Additionally, change can often create uncertainty, with some investors choosing to hold off making decisions until new trends become clearer, creating yet more challenges for fundraisers.
Overall, Trump’s approach, which he claims aim to correct long-standing trade and structural imbalances, reflects a pattern of leveraging the United States’ economic power to prioritize the American economy, regardless of the ripple effects on its rivals and allies – an approach Trump views as his prerogative given his commitments to prioritise the United States own interests when campaigning. In this environment, countries have two primary paths to respond.
First, they could compete with the US by pursuing their own deregulation strategies. This approach is likely to be appealing as it requires minimal upfront investment. Second, countries could seek to replace lost US trade relations by expanding ties with third-party nations. However, this strategy is more complex and time-consuming, requiring the negotiation of new trade deals. It could also provoke political backlash, as some nations may adopt protectionist policies of their own to reduce dependence on global trade.
Finally, a few additional trends under the Trump administration are worth noting. To date, his tariff focus has largely targeted physical goods, though there are concerns about the impact of potential retaliations related to services trade. Additionally, significant shifts in US foreign aid policy and global security strategies could alter investment landscapes. For example, we might see an increase in European defence spending, which could create new investment opportunities in the private sector, or a shift in where aid money is directed, impacting economies in developing regions.
Ultimately, while long-term predictions about Trump’s impact on the global economy and investment markets remain uncertain, due to his tendency to rapidly change policies on tariffs, international agreements, and executive orders, it’s already clear that the next few years will bring new trends, challenges, and opportunities that differ markedly from recent history.
