Trump 2.0: The Second Act Begins
We can’t avoid talking about Trump, so let’s tackle it head-on.
In less than a week, Donald Trump will once again take the oath of office as President of the United States. Unlike his first term, which felt like a political rollercoaster nobody saw coming, this time he appears to have a clearer game plan for what should be his final presidency. Call it Trump 2.0—a four-point agenda designed to cement his legacy, secure his family’s future, and address the economic and geopolitical challenges of the day.
Let’s break it down:
Do something monumental.
Ensure the Trump children are set for life.
Wage war on inflation.
Look strong on foreign policy.
These priorities aren’t just a checklist; they’re a roadmap for a presidency that aims to leave an indelible mark. Let’s dive into the details.
1. The Quest for Legacy
Trump’s first order of business is to etch his name into the history books. Whether that means brokering peace in Gaza, ending the war in Ukraine, or—dare we say it—invading Greenland, the incoming president is on the hunt for a legacy-defining moment.
2. The Trump Dynasty
It’s become a trend for U.S. presidents to have troublesome children, and Trump is no exception. Some of his children’s business dealings may not withstand intense scrutiny, so he’ll likely work to shield them from becoming easy targets after his presidency. After all, what’s a legacy without a family empire to carry it forward?
3. Inflation: The Economic Boogeyman
Here’s where things get tricky. Trump and his team know that inflation was the Democrats’ Achilles’ heel in the last election. Americans were fed up with rising prices, even as unemployment hit record lows and wages grew. Trump’s mission? Tame the inflation beast. But here’s the rub: many of his proposed policies—higher tariffs, lower interest rates, and a weaker dollar—are inherently inflationary. It’s like trying to put out a fire with gasoline.
To curb inflation without causing too much pain, Trump will likely push for a swift resolution to the Gaza conflict. Recent news from Qatar suggests progress on a peace deal. The Biden administration may want to broker a deal before Trump’s inauguration, but there’s little incentive for Israel or Hamas to speed things up. Both could benefit by allowing Trump to claim credit for “fixing” the war shortly after taking office.
A reduction in Middle East tensions would lower commodity prices and potentially ease shipping constraints. However, Israeli Prime Minister Benjamin Netanyahu may not be eager for a quick deal, as his political future is uncertain post-war. Similarly, Trump can’t exert too much pressure given the strong pro-Israel sentiment among his base. Without clear support from Trump, it will be difficult for Israel to accept any peace deal.
Trump will also aim to end the war in Ukraine quickly. Recent overtures to Vladimir Putin have faltered, and Ukrainian President Volodymyr Zelensky is a skilled political operator. But as Ukraine continues to lose ground to a Russian military indifferent to casualties, its willingness to negotiate may increase.
If both conflicts are resolved, the U.S. and the world should see lower commodity prices. More importantly, it would showcase Trump’s ability to broker global deals.
Domestically, taming inflation is a tougher challenge. The U.S. enjoys healthy unemployment levels, and wage growth, while slowing, remains higher than anything seen in the past two decades. This leaves the Federal Reserve with little room to maneuver, and interest rates are likely to stay high to cool inflation.
To reduce inflation, the government must cut spending. Elon Musk has proposed 2 trillion in cuts, later scaled back to 1 trillion, with more likely to come. Trump has vowed not to touch two-thirds of the federal budget but plans to increase spending on border security, tax breaks, and big energy projects—all of which could widen the deficit and fuel inflation. Additionally, the debt ceiling will need to be raised, and not all Republicans will sign off without significant cuts. This will likely be the new administration’s first major struggle.
In short, inflation is unlikely to fall in the first half of 2025, forcing the Fed to maintain higher rates unless the job market weakens unexpectedly.
4. Tariffs: The Trumpian Trump Card
When it comes to foreign policy, Trump’s appointees share a common thread: they see China as public enemy number one. Tariffs on Chinese goods are almost a given, with rates potentially soaring to 40-60%. While this might make microwaves and TVs more expensive for American consumers, it’s unlikely to revive domestic manufacturing. Why? The U.S. simply doesn’t have the workforce to staff the factories. Trump’s advisors know this, so why raise tariffs? Partly to annoy China, but also to generate tax revenue and project strength on foreign policy. After all, the Trump administration runs on dopamine and tweetable results.
For China, however, the stakes are higher. The Middle Kingdom is no longer the economic juggernaut it was in 2017. Back then, China’s economy was booming, and the world was vying for its attention. When Trump first imposed tariffs, China devalued the yuan and absorbed the impact without significant harm to its exporters. A deal signed in mid-2019 eased tensions as the Trump administration sought a “victorious” agreement.
Eight years later, the situation has changed dramatically. China’s soft power has waned as its domestic economy struggles with highly leveraged regional governments, a property downturn, and lackluster consumer demand. The yuan is trading at a 15-year low, and the People’s Bank of China (PBOC) is hesitant to lower interest rates too much, fearing volatile currency markets.
China’s recent attempts to boost domestic consumption have fallen short, leaving policymakers with limited options. The time for China to “bet big or go home” is nearing, and we may see more aggressive measures soon. If China can present itself as a stable alternative to a volatile U.S., it could regain global favor—but only if it couples this with a strong economy.
In the short term, higher U.S. tariffs could spur larger Chinese stimulus efforts. By March, China may have a strong set of policy levers to pull, potentially sparking a rally in Chinese equity markets. Until then, the dollar will likely strengthen, U.S. equities will outperform, and bond markets will remain weak due to uncertainty over deficit reductions.
There’s also an optimistic scenario: Trump, the self-proclaimed dealmaker, could reach a middle ground with China, improving U.S.-Sino relations. China may send a top-level envoy to Trump’s inauguration, and recent rumors suggest the Chinese government is considering selling TikTok to Elon Musk. These could be the first steps toward a surprising détente.
5. The Neighborly Squabble: Canada and Mexico
Tariffs on Canada are likely a non-event. Canada mainly exports crude oil, gas, and commodities to the U.S., and imposing tariffs on these would hurt U.S. importers and fuel inflation. The automotive sector, dominated by non-U.S. brands like Stellantis, Toyota, and Honda, is at some risk, but the impact would be limited.
Tariffs on Mexico, however, would be far more impactful. Mexico exports manufactured goods like electronics, cars, and machinery. While U.S. brands dominate the automotive sector, companies like BMW and Volkswagen also have significant production facilities in Mexico. Higher tariffs could shift some electronics manufacturing to the U.S., but much of the supply chain originates in East Asia, so additional tariffs will perversely make Mexican production cheaper even with a 10% tariff increase. For tariffs to be effective, the U.S. would need to negotiate far more aggressively with its southern neighbor.
The Bottom Line
Trump’s second act promises to be a high-stakes drama, with inflation and foreign policy taking center stage. While his team is laser-focused on taming prices and projecting strength abroad, the path to success is riddled with contradictions. Higher tariffs could backfire, and domestic spending could exacerbate inflation. Meanwhile, China and Mexico are wildcards, each with their own agendas and challenges.
One thing’s for sure: love him or loathe him, Trump’s presidency will be anything but boring. Buckle up—it’s going to be a wild ride.