Can We Talk about Trumpism in Economy?

In his election campaign, former President Donald Trump centered his political platform on the American economy, aiming for substantial economic growth through major fiscal and structural reforms. With his victory on November 5, Trump returns to the White House as the 47th President of the USA to continue his slogan, "Make America Great Again." Trump's economic program primarily focused on tax reductions, loosening regulations on businesses, and supporting American industry by raising tariffs on Chinese and European goods to encourage investment and job creation within the country. This program, though widely debated, garnered both praise for fostering sustainable economic growth and criticism for potentially increasing inequality and impacting the national deficit. Nevertheless, it achieved considerable success. The day after his victory, financial markets responded positively. Here’s how.

AMERICAN STOCK EXCHANGE ON THE RISE

Several interrelated factors contributed to the rise in U.S. stock markets following Trump's election, boosting investor confidence and optimism about the country’s economic future. Key factors include:

Tax Cuts and Jobs Act: A cornerstone of Trump’s economic policy during his first term was the Tax Cuts and Jobs Act, enacted in late 2017. This law reduced the federal corporate tax rate from 35% to 21%, with promises to lower it further to 15%. The tax cuts boosted corporate profits and increased capital available for new investments, driving up stock prices. During his campaign, Trump cited this legislation as a successful policy, reminding investors of the post-2017 economic boom. This memory spurred investments in U.S. capital markets, and Bitcoin also experienced a 6% intraday increase.

Liberalization of Business Regulations: Regulatory reforms were another critical component of Trump’s first term, and he pledged to continue these efforts if re-elected. His administration significantly reduced regulations, particularly in the energy, finance, and health sectors, allowing companies more flexibility to grow and increase profits, which, in turn, raised share values. The campaign promises reinforced investor expectations of continued favorable conditions for businesses.

Sustainable Low Interest Rate Policy: Trump’s first term also benefited from a low interest rate environment, and he promised to support such conditions in his future term. Although the Federal Reserve operates independently, it maintained low interest rates to foster economic growth, making borrowing cheaper and encouraging corporate and consumer spending. Just a week after Trump’s victory, the Federal Reserve cut interest rates by an additional 0.25 points. Although anticipated, the timing of this decision post-election worked to Trump’s advantage.

The positive reaction of the stock markets signals confidence in Trump’s political and economic programs, which aim to impact all sectors of the economy from both macroeconomic and microeconomic perspectives.

TRUMPISM IN ECONOMY AND IMPACTS ON EUROPEAN DEVELOPMENTS

A major focus of President Trump's economic program was on infrastructure investment and the protection of American industry. By imposing tariffs on imports from countries like China, Trump aimed to shield domestic industries, giving renewed optimism to American manufacturing companies. He pledged to bolster the global economy and support American companies operating internationally by promoting a vision of world peace, which he argued would help these companies increase their global market share. This anticipated rise in global demand for American goods and services was expected to enhance corporate profits and boost stock prices.

Trump emphasized that ongoing wars and the U.S.’s involvement in various conflicts hindered the global economy, primarily through heightened uncertainty and volatility in financial markets. His predecessor's policies in Ukraine and Israel, according to Trump, created political and economic instability that rippled through global markets, as geopolitical tensions tend to push investors toward safer assets like gold and treasury bonds, leading to market fluctuations.

Another key concern Trump addressed was the impact of conflicts on inflation, energy prices, and the price crisis. Wars and instability, particularly in the Middle East, directly influenced oil prices, which in turn affected the global economy. High oil prices drive up costs for transportation and production, thereby increasing inflation. Trump’s statements about reassessing U.S. involvement in these regions suggested a policy aimed at stabilizing energy markets, which would ideally reduce inflationary pressures tied to volatile oil prices.

Additionally, Trump’s rhetoric about reviewing international alliances—especially with NATO—raised questions about the U.S.’s commitment to international stability. His statements on ensuring more equitable funding among NATO members for collective security sparked concerns in regions like Eastern Europe and Asia about U.S. support in sensitive areas. This perceived uncertainty about regional stability could potentially affect international trade and investment.

In interviews following his victory, Trump clarified that while American international policy would remain functional, it would prioritize a more balanced financial commitment among allies, allowing the U.S. to focus resources domestically. This approach, grounded in "America First" principles, reflected economic nationalism, with a heightened focus on American manufacturing and jobs. While Trump’s agenda aimed at fostering economic growth at home, it also led to trade tensions and introduced restrictions in some sectors of international trade.

Trump’s policies could have significant economic and geopolitical effects on Europe. One of the primary points of contention is the pressure on NATO countries, particularly in Europe, to significantly raise their defense spending. Trump has previously urged NATO allies to increase their financial contributions to the alliance, and his current economic platform emphasizes this demand even more strongly. European nations worry that such heightened defense spending would divert resources from other economic priorities, including funding for development initiatives like NextGenerationEU. A considerable shift in budget allocation toward defense could thus contribute to inflation and reduce available funds for economic and social development programs across the EU.

During Trump’s first term, tariffs on European goods such as steel and aluminum were implemented to protect American industries, resulting in increased costs for both European exporters and American consumers. In response, European countries imposed reciprocal tariffs on American products, negatively impacting transatlantic trade. Trump’s current economic plan includes potential tariffs on European sectors like food, fashion, and automotive industries to support U.S. manufacturers. Key European economies such as the United Kingdom, France, Italy, and Germany would be directly affected, facing reduced access to U.S. markets and additional costs. Analyst Garret Martin from American University in Washington predicts that these tariffs would bring financial consequences for Europe, further straining economic relations.

Trump’s protectionist stance and uncertain support for international organizations, particularly the World Trade Organization (WTO), have introduced instability in global economic relations. European companies, concerned by Trump’s policy unpredictability, have often hesitated to invest or expand in the U.S., instead waiting for clarity on any new regulations or restrictions. As a result, some European companies may reassess their American market strategies or even shift their investments to more stable regions.

Finally, Trump’s emphasis on exporting U.S. liquefied natural gas (LNG) to Europe as an alternative to Russian gas creates a complex energy dynamic. Although this diversification can reduce Europe’s reliance on Russian energy, U.S. LNG is often more expensive. In addition, Trump’s policy of pressuring Europe to purchase more American LNG has stirred tensions within the EU, as some European countries have longstanding energy agreements with Russia and have explored alternative suppliers from Africa and the Middle East.

TRUMP ADMINISTRATION'S RELATIONS WITH CHINA AND SOUTH ASIA

In President Trump's renewed economic policy, the trade war with China takes center stage, as tariffs and restrictions on Chinese goods are anticipated to elevate production costs, thereby making these products more expensive and less competitive globally. During his campaign, Trump proposed a 60% tariff on Chinese consumer goods. Should this be implemented, China, which exports approximately USD 500 billion worth of goods to the U.S. annually (around 15% of its total exports), would encounter a formidable economic challenge. This proposed 60% tariff surpasses the 2018-2019 tariffs of 7.5% to 25% on USD 370 billion in Chinese goods. Moreover, the Chinese economy today is more vulnerable than in 2018, partly due to a real estate sector now in crisis, which previously contributed about a quarter of its GDP. This sector’s downturn has also left local administrations grappling with heavy debts, thereby constraining their fiscal flexibility to mitigate external economic shocks.

China’s limited domestic demand, with household consumption below 40% of GDP (20 points lower than the global average), heightens its vulnerability to these new tariffs on exports to the U.S. While some analysts suggest devaluing the yuan by about 18% could counterbalance around 60% of the impact, economic constraints make such a move unlikely. "China cannot actually respond to tariffs of this magnitude," remarks Alicia Garcia Herrero, Chief Asia-Pacific Economist at Natixis Bank, adding that Beijing's likely response would be to announce economic incentives aimed at stabilizing market confidence.

China could, however, implement countermeasures affecting American companies within its borders, such as imposing tariffs on U.S. agri-food imports and restricting exports of critical raw materials, as it did last year with gallium and germanium—metals essential to defense, communications, and semiconductor industries. Yet, Trump’s approach to China is marked not only by economic measures but also by geopolitical maneuvering, using tariffs as potential leverage to negotiate broader deals. The precise nature of such negotiations remains unclear, though they may touch upon U.S. interests in strategically sensitive regions such as Taiwan, the Philippines, and Vietnam, where territorial tensions with China are already high.

Trump’s stance could also impact the U.S.-China-Taiwan triangle, especially given his view that Taiwan should "pay us to protect" it, expressed last summer. Additionally, Japan, Vietnam, and the Philippines find themselves in delicate positions due to territorial disputes with China, and Trump's prior engagement with North Korean leader Kim Jong-un adds another layer of unpredictability to regional dynamics.

In South Asia, Trump's return could benefit India more than Pakistan, aligning with India’s role as a significant counterbalance to China. His relationship with Indian Prime Minister Narendra Modi has seen economic shifts, but both leaders have managed to strike beneficial compromises in the past. This renewed partnership could reinforce U.S.-India ties as a strategic response to China’s growing influence in the region.

HOW DO ECONOMY EXPERTS ASSESS PRESIDENT TRUMP?

Economists and analysts are divided on Trump’s economic policies, especially his protectionist stance and “America First” focus. Supporters argue that tax cuts under Trump’s administration spurred American companies to increase profits and job creation, boosting competitiveness and encouraging local investments. They view these measures as beneficial for American business growth. However, critics highlight that such gains are skewed towards corporations, with fewer advantages for the middle and lower-income populations, potentially exacerbating inequality.

One of the primary concerns among experts is the rise in federal debt stemming from extensive tax cuts coupled with increased spending. Many argue that this growing debt could restrict the U.S.’s fiscal flexibility in future economic crises, making it harder to navigate downturns.

On trade, critics of Trump’s tariffs and the U.S.-China trade war from his first term argue that these protectionist policies disrupted global trade, raised consumer prices, and created uncertainty in supply chains. American consumers faced higher costs for imports, and global supply chains became less predictable, complicating international business operations. The policies, they say, also intensified economic inequality, as tax benefits primarily favored corporations and high-income individuals, widening income gaps and potentially weakening consumer spending.

Some economists suggest that Trump’s policies might yield short-term boosts for certain U.S. industries but could also fuel uncertainty and tension in the global economy. The long-term impact on economic cycles depends on variables like domestic policy decisions, global relations, and international economic conditions.

In summary, Trump’s economic policies present a complex and polarizing impact with significant implications both in the U.S. and worldwide. While potential growth opportunities exist, striking a balance will be essential to foster economic stability and maintain robust international cooperation. For Europe and other regions, adapting strategically to these shifts will be crucial to safeguarding economic interests amid the evolving U.S. economic agenda.

*Anastas Angjeli is an academician, economy expert, former MP and Finance Minister, founder and president of the Mediterranean University of Albania