A foretaste of what President Donald Trump’s vaunted ‘Make America Great Again’ agenda might have in store for the rest of humanity was on full exhibition during his address to business leaders and heads of government on January 23, barely days after he was sworn in for a second term in office at the World Economic Forum gathering at the Swiss Skiing resort of Davos. Among its main ingredients were an array of undisguised demands imposed on other sovereign nations, starting with Saudi Arabia and other oil producers, who were told to reduce prices.
President Trump was then emphatic that Central banks, including the U.S. Federal Reserve, should cut interest rates, setting aside time-honoured convention that governments respect the banks’ mandate to pursue an independent monetary policy. Concern is already growing among economists that, consequent to the unfolding stringent curbs on immigration, U.S. inflation will touch 2.6% this year, up from what was just over the stipulated 2% mark preceding the November 2024 election.
Then came Trump’s warning to foreign companies to invest in American factories or face tariffs. In a particularly cryptic message to the European Union, where trade accounts for more than a fifth of its Gross Domestic Product, the bloc must stop slapping what President Trump called “competitive fines” and purchase more oil from the U.S. or face punitive tariffs.
Among emerging economies, the two Asian giants, India and China, are gearing up to face the new reality. A 100% levy on all imports from Beijing is on the cards if President Xi Jinping fails to influence the sale of at least 50% of TikTok’s stakes to a U.S. company. Earlier this week, President Trump urged the Indian Prime Minister Narendra Modi, whom he described as a friend, to increase arms purchases from Washington, raising the prospect that New Delhi might recast at least some of its current defence deals with Russia and France.
Washington’s immediate neighbours and largest trading partners have already borne the brunt of the White House’s wrath, effectively undermining the free-trade agreement the U.S., Canada and Mexico renegotiated during President Trump’s first term. Ottawa and Mexico City are frantically aligning their policies to avert the threat, from as early as the 1st of February, of a 25% duty on imports into the U.S. The move is aimed as retaliation against the rising influx of undocumented migrants and trafficking of opioid fentanyl. If President Trump goes on to make good on his populist pledge, Canada’s gross domestic product would shrink by 2.6%, estimates the country’s Chamber of Commerce.
At the root of President Trump’s ire is Washington’s large and growing trade deficit with several countries, which he erroneously portrays as free riding by the policies of these governments to the detriment of Washington’s economic strengths. Such a reading blissfully ignores the reality of the inevitable economic pain that American companies and consumers would be subject to from high import tariffs.
Commentators, speculating as to whether the President’s ultimatums leave open any scope for a re-run of President Trump’s transactional and deal-making mode of operation from his first term or amount to an unmitigated unilateralism, may draw their own conclusions. But optimists counting on a room for manoeuvre under Trump 2.0 are pinning their hopes on the Treasury Secretary Scott Bessent’s suggestion for a gradual 2.5% universal tariff on all U.S. imports rising each month by the same amount. It is an open question, of course, whether the incremental approach would satisfy tariff hawks such as Peter Navarro, Trump’s adviser on manufacturing and Jamieson Greer, a leading trade lawyer.
Meanwhile, there are good indications of strong resolve and resilience among capitals around the world to ride out this emerging rough phase in global trade. In a bid to forge a common front, Canada and Mexico are engaged in repairing relations strained after Prime Minister Justin Trudeau hinted that he was ready to eject Mexico from the USMCA and suggested that Chinese investment in the country was problematic. In a sign of a potentially unifying effect on countries caught in the crossfires, many capitals are already busy building a second line of defence in the form of crafting bilateral trade deals. The most outstanding example of them all from President Trump’s first term in office was the successful conclusion of the eleven-member Regional Comprehensive and Progressive Agreement for Trans-Pacific Partnership, despite Washington’s withdrawal from negotiations in 2018. The European Union is firming up the final touches of a decades-old negotiation with South America’s Paraguay, Uruguay, Argentina and Brazil on the Mercosur trade agreement.
In a sign of hope at home, President Trump rescinded an executive order freezing federal loans and grants worth billions of dollars meant for the poor and elderly care. A federal judge blocked the move, following a backlash from the Republican and Democratic parties in several states. But the fallout may not be as fortuitous in relation to the scores of orders that Trump has issued since his inauguration, especially those revoking foreign aid, withdrawal of support to combat climate change and to resume oil and gas explorations.
The road ahead for the global economy will no doubt prove bumpy in the near future. The many conflicting voices within the Trump team is where the advantage will lie for countries and businesses seeking to counterbalance Trump’s push towards unilateralism and isolationism.
