01/27/2025

Last week saw the return of Donald Trump as President of the United States. The Republican deployed a series of measures from trade and taxation to regulation from day one. Although the initial actions were more moderate than many feared, the dynamics so far point to an external policy that uses threats as a lever for negotiation on the commercial front, the outlook remains ambiguous. Trump pointed out the possibility of imposing significant tariffs, including 10% on Chinese imports as a response to alleged unfair practices. However, he chose to delay any specific decision until a comprehensive review of the current status of things is completed, which is scheduled for April 1. This decision to keep tariffs suspended reflects both a strategy calculated to maximize the concessions of its business partners and a willingness to avoid immediate impacts on the markets, especially in a context where the strength of the dollar could intensify, which would put competitiveness of US products abroad at risk.

In the fiscal field, although there were expectations of new tax cuts, Trump did not address the issue during his inaugural speech, suggesting that these might not be an immediate priority. Similarly, he took a firm stance on immigration, declaring a national emergency on the southern border to strengthen control and establishing a temporary suspension of new asylum applications for a period of 90 days. He also focused on the deportation of people with criminal records, rather than promoting massive outflows of undocumented immigrants.

At Davos, the new US president presented a mix of incentives, such as low corporate taxes and minimum regulation, along with tariff threats, underlining a negotiation-based, rather than ideological approach. Although some international political and business leaders still express concern, there appears to be a general willingness to collaborate with their "pragmatic" approach, which focuses on negotiating strategic agreements rather than implementing disruptive policies.

Meanwhile, the financial markets received the initial moderation of the US president with optimism. The stock markets recorded new increases, reflecting a relief in the absence of extreme movements. However, this optimism remains conditioned by the uncertainty inherent to the unpredictable nature of Trump's policies, which could suddenly turn away if the current negotiations do not achieve the expected goals.

Over the next few days, central banks will again be at the forefront of the market. The Federal Reserve will probably keep rates unchanged, while it assesses the evolution of the economy and inflationary risks. Fed Chairman Jerome Powell is expected to maintain a cautious tone, highlighting economic uncertainty.

Furthermore, the ECB is expected to reduce rates by 25 basis points, continuing its gradual adjustment process. European inflation shows signs of stabilization and growth remains weak, especially in key economies such as Germany and France. The ECB is likely to avoid providing further guidance on the upcoming policy movements, as the institution faces the uncertainties arising from Trump's trade policy. In this regard, Lagarde may refer to the negative impact that the tariffs would have on economic growth in the region, although their effect on inflation would be less certain.

Finally, last week, the Bank of Japan increased rates by 25 basis points, showing greater confidence in reaching its inflation target of 2%. The decision reflects renewed optimism about salary increases and their transfer to prices. If the economy is evolving as expected, the Japanese monetary authority is likely to continue gradually raising rates. However, political risks, such as the influence of Trump's tariffs and volatility on foreign exchange markets, could delay these actions.

Without leaving the Asian region, China is in a cautious position in response to the tariff threats of the new US president. Although the likelihood of immediate tariffs is low, the US administration's negotiating approach leaves the possibility of new tensions open. During the World Economic Forum, Trump's interest in visiting China in his first 100 days was highlighted, suggesting an inclination towards initial cooperation. However, the experiences of the first trade war between both countries show that conflicts could intensify rapidly if negotiations fail.

In short, the global scenario for 2025 is defined by the interaction of pragmatic policies and negotiation strategies that reflect the search for competitive advantage in a world of growing uncertainties. While this dynamic could generate opportunities in specific sectors, it also amplifies the risks for global markets. The capacity of economic and political actors to navigate these challenges will largely determine the course of the world economy in the coming months.