SINCE January 21st the World has been watching with shock, surprise and uncertainty as to where we are headed for and why are we being kept on tenterhooks by our rulers, for fulfilling their evil agenda which we never wanted.
The world since January, 2025 has only witnessed turmoil – both politically and economically and the direction not only seems to be uncertain and foggy but is shrouded in mystery. The new “Trumpnomics”, with imposing Tariffs globally on every country- rich or poor, developed or undeveloped, friendly or unfriendly, is facing a major dilemma due to what some economists call, unwarranted and major destabilizing factor as far as the global economy is concerned. Even the countries, which have signed bi-lateral and multi-lateral agreements since years have been targeted. In a nutshell everything is going Topsy-turvy and rising global trade wars which will initiate yet another meltdown- may be worst than one we survived in 2008 and in the aftermath of Covid-19.
Today, if you look around, you see nothing but turmoil, uncertainty, shaky business environment, stock markets on a roller coaster ride, vanishing and closing businesses as they cannot survive in these un-predictable and inflation- dominated global economy where prices are rising constantly pushing more people in poverty and making many previously affordable items of daily use, out of reach of many households. This really is a scary scenario and people are flabbergasted as to when is it going to end. Frankly speaking, this poses a million-dollar question. With US President Donald Trump’s self-imposed August 1st deadline having come and gone, trading partners across the globe are digesting what his new threatened tariffs might mean for them.
But it’s early days yet in Trump’s trade war and everything from the unexpected movement of the dollar to negative jobs data and $1 trillion in trade exemptions continues to cloud the picture as we assess how Trump’s tariffs— which an appeals court could soon rule illegal—are affecting US businesses, China and the rest of the world. Trump believes Jerome Powell, the Fed Chairperson, has overestimated the inflation risk from the trade war. He considers global warming a non-issue and withdrew from the Paris Accord, impacting climate, crops and exposing lives to more weather hazards. In his earlier stint, Trump promised transformative economic change after eight years of stagnation under Obama. His new economic populism combines Republican ideas—tax cuts, deregulation, more state power—with Democratic issues such as trade protectionism and infrastructure spending, alongside populist themes like immigration reform, pressing Europeans to fund more of their defense and his slogan of keeping America first.
Domestically, the promise of lower taxes and looser regulation for companies will likely mean businesses can boost their profits. This possibility has been reflected within the last week in the share prices of many major American businesses and value of Dollar, which is increasing America’s purchasing power. However, globally, Trump’s victory has been met more apprehensively with the Euro, Pound and Yen all slumping in value.. On the campaign trail Trump described tariff as “the most beautiful word in the dictionary” – a sentiment that will not be shared around the world.
New York – Since Donald Trump’s “Liberation Day” on 2 April, when he announced sweeping trade tariffs on friend and foe alike, the conventional wisdom about the US economy’s short-term and medium- to long-term prospects has been pessimistic. Higher tariffs will cause a US and global recession; US exceptionalism is over; America’s fiscal and current-account deficits will become unsustainable; the US dollar’s status as the main global reserve currency will soon end; and the dollar will sharply weaken over time.
Certainly, some of the policies Trump has announced warrant pessimism. Tariffs, protectionism and trade wars are likely to be stagflationary, as are draconian migration restrictions, mass deportations of undocumented workers, large unfunded fiscal deficits and interference with the Federal Reserve’s independence. The US economy would also suffer from a Mar-a-Lago Accord to weaken the dollar, damage to the rule of law, or tighter restrictions on foreign talent. Nonetheless, I have maintained that the US economy will be fine – not because of Trump’s policies, but in spite of them. I expected market discipline, sensible advisers and Fed independence to prevail, which has happened. Trump has consistently chickened out, pursuing trade deals rather than his Liberation Day tariffs. While his default may be “TALO” (Trump Always Lashes Out), bond vigilantes and markets have pushed him into “TACO” (Trump Always Chickens Out) mode. Thus, the likely outcome is a growth recession, not an outright recession.
Second, because the positive effects of technology will always trump the negative effects of tariffs, the era of US economic exceptionalism is not over. The US leads everyone – including China – in most revolutionary innovations that will define the future. Accordingly, potential annual growth may rise from 2% to 4% by the end of the decade, before climbing higher in the 2030s. Suppose new technologies boost potential growth by 200 basis points while bad policies reduce it by 50; America would remain exceptional. It is the dynamic private sector, not Trump’s policies that will shape future growth. Third, if growth accelerates toward 4%, US public and external debts as a share of GDP will be sustainable, stabilizing and then falling over time. The CBO’s rising debt projection assumes growth peaks at 1.8%. Fourth, as long as exceptionalism lasts, the “exorbitant privilege” of the dollar’s global primacy will endure. Despite higher tariffs, external deficits will remain high as investment rises and savings remain stable. The current-account deficit will be financed by equity inflows, limiting exchange-rate risks and possibly strengthening the dollar. Even modest diversification away from dollar assets is unlikely to challenge its reserve currency status.
In short, the US is likely to do well over the rest of this decade, not thanks to Trump but in spite of him. There is no question that many of his policies are potentially stagflationary. But the US happens to be at the center of some of the most important technological innovations in human history. These will deliver a large positive aggregate supply shock that will increase growth and reduce inflation over time. This effect should be an order of magnitude larger than the damage that stagflationary policies can induce. Of course, one should not be complacent about damaging policies; their negative impact could be serious. But as long as markets and bond vigilantes do their job, Trump’s worst impulses will be constrained.
—The writer is Former Civil Servant and Consultant (ILO) & International Organisation for Migration and author of seven books.
