Getting Ready for Trump 2.0: Don’s Aggressive Stance on Global, Domestic & Economic Uncertainty

When Trump first became president in 2016, the US was experiencing a long period of low inflation.

Donald Trump’s second term as US President begins at noon on January 20. Ever since losing to Joe Biden in 2020, Trump has run a relentless campaign suggesting he plans a more organized version of his first term. His priorities remain the same: cutting taxes to boost the economy, imposing higher tariffs to change US trade policies and deporting a large number of immigrants to create more job opportunities for Americans. However, the world has changed, and what he promises may not align with what he can realistically achieve. 

Trump’s Risky Economic Agenda 

When Trump first became president in 2016, the US was experiencing a long period of low inflation. To support the economy during this time, the Federal Reserve—the central bank of the US—kept interest rates close to zero. This policy was aimed at encouraging borrowing and spending, which help drive economic growth—especially during periods of sluggish economic activity. 

However, things are very different this time around. Inflation rose sharply during the COVID pandemic, and the Federal Reserve is still cautious about its resurgence. Because of this, interest rates are still relatively high. 

Trump’s planned tax cuts would boost the economy, although unemployment is already low. If the economy shows signs of ‘overheating’—when demand grows too fast, causing high inflation—the Federal Reserve may respond by making borrowing more expensive through higher interest rates. 

Trump has talked about wanting to change the leader of the Federal Reserve, but he cannot simply fire Fed Chair Jerome Powell. If he tries to do so, it could cause problems, such as higher long-term interest rates and rising inflation. This is because the Federal Reserve plays a key role in managing the economy and sudden changes in its leadership could make investors and the markets nervous, leading to economic instability. 

In 2025, there are plans for tax cuts that will mainly benefit wealthy people. However, these tax cuts will reduce the government’s income, which could hurt the country’s financial stability in the long run. This means that the government may struggle to manage its budget or fund important programmes in future. 

Bigger government deficits—when the government spends more money than it earns—could lead to higher-than-normal interest rates. This may also make the value of the dollar go up, which can create problems for US businesses that sell goods overseas because their products will become more expensive. It could also cause trouble for other countries that have taken loans in dollars, as it would make paying back those loans more costly. 

Tariffs and Business Loopholes 

When it comes to tariffs, world leaders—as also the financial markets—have realized that Trump makes bold statements but does not take strong actions to back them up. He will, possibly, make much noise about putting big tariffs in place, but US businesses will quickly start looking for ways to get around them and pushing for special wavers. 

Foreign leaders will visit Mar-a-Lago, play golf and work out deals to avoid tariffs. For instance, they may agree on such things as “we won’t tax your bourbon if you don’t tax our cognac and we’ll buy more US-made defence systems”. 

Trump could choose to ignore all the requests for exceptions and wavers and push for higher tariffs on every item. But this would lead to more pushback from trading partners and stronger complaints from the big companies that currently support him. 

The last thing Trump wants is to cause Americans to lose jobs. But that could happen if US companies have to pay more for imported goods, or struggle to compete in overseas markets. 

As long as foreign leaders do not embarrass him on the golf course and highlight the jobs their companies create in the US—especially in the Republican-led states—he will be open to reasonable discussions. 

Border Wall: Symbol or Solution? 

Trump is likely to make an impact on illegal immigration. The idea of a ‘border wall’ to stop migrants is more symbolic than it is practical. However, he is already warning Mexico and other countries—even Canada!—that he will impose high tariffs and other penalties if they do not stop illegal immigrants from crossing the border. This approach is very likely to have a significant effect. 

Trump would, possibly, prove to be smart enough to ease US sanctions on Venezuela, which would allow more oil to enter the global market and help Venezuela’s economy. This could reduce the number of Venezuelans trying to leave the country. At the same time, it would put financial pressure on Iran and Russia, as they depend on oil sales to buy electronic parts from China for their weapons. 

Trump could take things further by deporting millions of people living illegally in the US. However, mass deportations would hurt such key industries as agriculture and construction, create major social problems and push his business supporters to reduce their investments and job creation efforts. 

We can expect bold political statements and attention-grabbing headlines, but not much will actually change; illegal immigration has already decreased! 

Aggressive Stance on Global Issues 

So, what will Trump actually do? Will he try to buy Greenland (or maybe even Canada!), take back control of the Panama Canal, or cut back on US support for NATO? 

Trump’s recent comments on these topics are not meaningless, but they should not be taken literally, either. He is focussed on getting what he sees as a ‘better’ deal for the US and wants to present it that way. If Trump has not yet clearly explained what he means, it, possibly, means that he is leaving room for flexibility and suggestions. In the end, whatever the outcome is, he can frame it as a strategic victory to fit his agenda. 

That is what happened during Trump’s first term, when the North American Free-Trade Agreement (NAFTA) was reworked in a deal with Mexico and Canada, Trump, initially, threatened to cancel NAFTA entirely “on day one”. But, finally, he made some minor changes, such as updating the rules of origin to satisfy all parties and rebranded it the ‘United States-Mexico-Canada Agreement’ (USMCA).  

The world is going through major changes, but the incoming Administration is unlikely to handle them adroitly. For instance, Trump continues to use aggressive language about dealing with China and Iran, even though both countries are already struggling economically and are not in a position to threaten regional stability or global peace. 

As he did during his first term, Trump has once again promised to pull the US out of foreign conflicts —earlier Afghanistan and Iraq, and now Ukraine! 

Russia’s reliance on drones and missiles for its attacks on Ukraine has left President Vladimir Putin completely dependent on China. Does Trump (and the Republican Congress) really want to give a struggling President Xi Jinping an unjust and violent win in Ukraine? 

Americans care mostly about holding good jobs and being able to afford the cost of living. But Trump’s “populist” plans are more about creating fear of imaginary enemies, rather than solving real problems and they are unlikely to succeed. 

Trump’s main policies are not likely to do much to help workers without a college degree, or make life easier for most Americans in the absence of a laissez–faire economy (a policy of minimum government interference in the economic affairs of individuals and society). Instead, the wealthy would stand to gain from tax cuts and a majority of the people could face higher prices, fewer public services and problems caused by removing important regulations. 

(The author of this article is an award-winning Science Writer and a Defence, Aerospace & Political Analyst based in Bengaluru. He is also Director of ADD Engineering Components, India, Pvt. Ltd, a subsidiary of ADD Engineering GmbH, Germany. You can reach him at: girishlinganna@gmail.com)