Lhe second administration of US President-elect Donald Trump suggests a resumption of the priorities of his first term: tax cuts, increase in customs duties, expulsion of as many immigrants as possible. But times have changed and reality is unlikely to match campaign rhetoric.
Very low during his first term, inflation has risen since then, and interest rates set by the Federal Reserve (Fed) are now relatively high. In an economy with already low unemployment, any sign of overheating (which could be caused, for example, by planned tax cuts) will be subject to a tightening of monetary policy.
Donald Trump has speculated about a change in the direction of the Fed, but he cannot fire its president, Jerome Powell, without risking both a rise in long-term interest rates and a rise in inflation. However, tax cuts will take place in 2025, mainly for the rich, and the resulting loss of revenue will compromise long-term fiscal sustainability. Larger deficits will have the effect of keeping interest rates higher than they otherwise would be. The dollar could thus strengthen, which would create difficulties for American exporters and for countries that borrowed in dollars.
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When it comes to tariffs, world leaders (and financial markets) have learned that Donald Trump talks big but only wields a small stick. American companies will lobby for exceptions. Foreign leaders will march to Mar-a-Lago, play golf, and negotiate give-and-takes: “We won't tax your bourbon if you don't tax our brandy, and we'll buy more air defense systems made in the United States. »
A predicted failure
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