Outlook 2025: Trump’s agenda has economic consequences

2025 is likely to be dominated by the ramifications of the new Trump administration in the White House. With a clean sweep of Congress anticipated (at the time of writing the Republicans are edging closer to the magic 218 seats to give them a majority in the House, as well as already having secured a majority in the Senate), Trump will have an unequivocal mandate to push his agenda: investing in infrastructure; reducing the tax burden; aiming to achieve his target to grow the economy by 3% a year sequentially; rescinding America’s participation in the Paris Climate Accord; doing a deal with Putin to bring the war in Ukraine to an end; and finally, launching a protectionist trade war by slapping a blanket 10% tariff on all imported goods except those from China, for which the tariff would be 60%. China (18% of global GDP) is struggling enough to reach its 5% annual growth target even before the new tariff regime is implemented.

‘MAKE AMERICA GREAT AGAIN’ has economic consequences. Until we know the policy details it is difficult to be precise about what they might be. Investors are currently weighing up the extent to which a splurge of fiscal stimulus from Trump’s growth package will stoke inflation, potentially slowing the pace of interest rate cuts. On the other hand, they are also trying to figure out the global reactions among those who trade with America and whether an escalation in the cost of doing business will cause the global economy to slow. Will America’s counterparties respond in kind? Or will they try and cut a deal with a man who loves wheeling and dealing?

The UK is a major case in point: the US is by a factor of three the biggest single national destination for our exports (at $72 billion, 22% of the UK total, followed by exports to Germany at 7%); it is the second-largest source of our imports (11.9%, or $94 billion, behind those from China at 12.5%); Keir Starmer is allegedly wargaming a bizarre tit-for-tat tariff strategy when the value of US trade matters much more to us than ours with America does to them. Given the UK is outside the EU and the Customs Union and is free to negotiate national trade deals, coming to a mutually beneficial arrangement with our closest ally would surely be more constructive.

At least the political situation in the US is clear. Not so in Germany. Its government has collapsed under the pressure of significant splits about economic stagnation, the lack of freedom to set an unfettered budget, immigration and climate change policy. The big question for Europe’s largest economy is the extent to which the more extreme parties on the left and right make significant gains nationally in the forthcoming unscheduled election, potentially defining (or at least significantly influencing) the future direction of German government policy with knock-on effects for the eurozone.

Finally, a year ago we described government debt as the elephant in the room. The elephant has only grown bigger. Across the western world, government debt and its sustainability remain a constant source of vexation and frustration for investors. And this is before the major economies have embarked on their own investments in carbon net-zero, or agreed on the fiscal support demanded by poorer countries from the wealthier at COP29 to manage the effects of climate change.

Outlook

Our summary of the past couple of years is enduring. We might have seen elements of today’s conditions before, but none of us has ever seen them in their totality in our investment careers, however long they span. Opportunities are there to be taken, but new risks present themselves and must be managed or mitigated against. From an investment perspective, we believe it pays to be open-minded and adaptable rather than prescriptive and dogmatic. Aiming to keep up in the good times, trying to lose less in more challenging conditions, this is what we believe goes to the heart of compounding long-term wealth.