As Donald Trump prepares to re-enter the White House in January 2025, the world is closely watching to see what “Trump 2.0” has in store for the American economy. The Republican’s campaign highlighted a range of promises to rejuvenate the US economy, with themes of “Make America Great Again” and “America First” still at the forefront. But what does that mean for America’s economic future, and how will these promises impact not only the United States but also the global market? Let’s take a closer look at Trump’s economic history, his new initiatives, and the road ahead.
Setting the economic stage
To understand what Trump 2.0 might mean for the American economy, it’s helpful to revisit his first term. Between 2017 and early 2020, the world’s largest economy experienced several economic shifts. Trump inherited a steadily growing economy from the Barack Obama administration, but his focus was on accelerating that growth through deregulation, tax cuts, and protectionist trade policies. Key features of Trump’s first term included the passage of the Tax Cuts and Jobs Act (TCJA) in 2017, which slashed corporate tax rates from 35% to 21%, and introduced a range of deductions for individuals.
The TCJA was seen by many as a pro-business move that invigorated American companies, increased corporate profits, and temporarily boosted the stock market. GDP growth, which averaged around 2.3% in Trump’s first three years, was propelled by these tax changes. However, it wasn’t without its costs—critics argued that the tax cuts primarily benefited the wealthy and corporations while significantly increasing the deficit. By early 2020, the COVID-19 pandemic brought a sudden halt to economic growth, leading to mass unemployment and a sharp decline in productivity.
Despite this setback, Trump consistently highlighted the “roaring economy” before the pandemic, and his promises in 2024 have focused on rekindling that same momentum with additional structural changes. Trump 2.0 promises to be a dynamic combination of fiscal policies, trade adjustments, regulatory overhauls, and new strategic initiatives.
In his 2024 election campaign, Trump placed his priority on transforming the American economy by emphasising innovation, reducing the role of federal oversight, and bringing industries back to the United States. His key economic policies revolve around a few distinct areas: tax reform, deregulation, trade negotiations, and the newly created Department of Government Efficiency (DOGE). Each of these initiatives has profound implications for the economy.
Taxation policies: Cutting down to grow up
Trump has promised to expand tax relief for the middle class by introducing a 15% flat tax rate for those earning under $150,000 annually. This approach aims to boost consumer spending, believing that individuals will pump their increased disposable income back into the economy, spurring demand and growth. Trump has repeatedly argued that the middle class is the backbone of the American economy, and his proposed tax cuts are designed to directly inject more disposable income into their pockets.
Corporations are also set to benefit, with the Republican proposing an “ultra-competitive” rate of 15% for businesses. Trump argues that reducing the corporate tax rate will bring companies and manufacturing jobs back to American soil, counteracting offshoring that took place over the last two decades. He has highlighted the importance of reshoring, pledging incentives to encourage companies to move their supply chains back to the United States. Furthermore, Trump has proposed targeted tax credits for industries such as technology, pharmaceuticals, and renewable energy, in a bid to make the world’s largest economy a leader in critical sectors.
While Trump’s first round of tax cuts helped propel short-term growth, they also contributed to an expanded deficit—now estimated at over $33 trillion. Analysts are concerned that doubling down on tax cuts may stimulate growth in the short term but add to the long-term debt burden, eventually leading to inflationary pressures and reduced fiscal flexibility. They also highlight concerns about income inequality, as reduced government revenues may result in cuts to social welfare programmes.
Despite these concerns, Trump maintains that his policies will be a net positive for the country. By incentivising productivity and economic participation, he believes that a growing economy will eventually offset the deficits. He has hinted at potential spending cuts in non-essential government sectors to balance the budget, though specific details remain vague.
Furthermore, Trump has proposed expanding tax incentives for research and development (R&D) to promote innovation and technological advancements, which he claims will keep American companies at the cutting edge of global competition.
Avoiding or rekindling a trade war?
During his first term, Trump implemented numerous tariffs aimed at levelling the playing field for American manufacturers. Dubbed a trade war by many, his efforts to renegotiate trade terms—particularly with China—left a lasting impact on US industries and global relations. Many industries faced increased input costs, and retaliatory tariffs affected American farmers who lost significant access to export markets. The US-China trade war saw billions of dollars of agricultural goods rotting, as farmers struggled to find new buyers.
In Trump 2.0, his campaign rhetoric suggests that he is ready to resume his hardline approach. He believes that trade deficits weaken the American economy and is expected to impose higher tariffs on goods from countries deemed to be “engaging in unfair trade practices.” His advisors have floated the concept of a “universal tariff” of 10% on all imports, which would generate revenue for the government and, ostensibly, encourage American businesses to purchase domestically produced goods. Trump has also stressed the need for better intellectual property protections and stronger trade enforcement measures to prevent foreign competitors from gaining an unfair advantage.
This strategy, however, is fraught with risks. Many economists argue that higher tariffs could hurt American consumers by raising prices on everyday goods and limiting access to foreign markets. American manufacturers who rely on imported parts and components could face higher production costs, making their products less competitive domestically and internationally.
The long-term effects of a broader tariff policy could damage key sectors like technology, automotive, and agriculture. Additionally, a renewed trade war could impact relationships with traditional allies and trading partners, leading to economic uncertainty both in the United States and abroad.
Moreover, there are concerns that Trump’s aggressive trade policies could isolate the US from global economic alliances. With countries like China and India strengthening their bilateral ties, the US risks being left out of key economic agreements that could shape the future of global trade.
Trump has indicated that he wants to renegotiate major trade agreements, including the USMCA and deals with the European Union, to enhance American leverage. However, the unpredictability of such negotiations could lead to market instability, making businesses hesitant to invest in long-term projects.
Additionally, Trump has proposed the formation of an “Economic Patriot Coalition,” a partnership between the government and key industries to ensure that the United States maintains leadership in strategic areas like semiconductors, 5G, and artificial intelligence. This coalition aims to counter perceived threats from countries like China and ensure that American industries have the necessary resources to thrive on the global stage.
The trade tensions between the United States and China are likely to result in increased tariffs on products like smartphones, laptops, and various electronic components. This move would not only lead to higher production costs for American tech companies but also make it more expensive for consumers to purchase these devices.
Companies like Apple, which rely heavily on Chinese manufacturing, would need to either absorb these additional costs or pass them onto customers, ultimately making gadgets like iPhones and MacBooks more expensive for the average American. Additionally, the semiconductor industry, which plays a critical role in the development of everything from consumer electronics to electric vehicles, would face severe disruptions, driving up costs in related sectors.
Agricultural products are also likely to be significantly affected by the re-escalation of trade tensions. In the first iteration of the trade war, China retaliated by imposing tariffs on American agricultural goods, such as soybeans, pork, and dairy, which hit American farmers particularly hard. With a return to trade confrontation, American farmers could once again find themselves struggling to sell their produce, facing a restricted market for exports. This would result in excess supply, driving down prices domestically and leaving farmers with decreased incomes. Industries related to food production and processing might also feel the ripple effects as the market reacts to fluctuating supply and demand dynamics, leading to financial instability in rural communities across the United States.
DOGE: Musk and Ramaswamy’s role
One of the more intriguing aspects of Trump’s new economic plan is the creation of the “Department of Government Efficiency” (DOGE). This newly minted entity is designed to root out inefficiencies across federal programmes and modernise government operations. Trump has tapped Elon Musk, the CEO of Tesla and SpaceX, and Vivek Ramaswamy, the biotech entrepreneur and author, to lead this effort.
DOGE aims to streamline government bureaucracy by introducing private-sector practices into federal operations. Musk’s track record of innovation and Ramaswamy’s business acumen are seen by Trump as critical assets in modernising the federal government. Trump has stressed that DOGE will identify areas where public spending can be reduced, increase accountability, and utilise technology to enhance productivity.
Defence procurement, health services, and public infrastructure projects are expected to be the focus of DOGE’s efficiency mandate. Additionally, there are proposals to integrate AI technologies across several departments to reduce waste, fraud, and inefficiencies.
Analysts, however, are split on what DOGE can realistically achieve. Proponents argue that Musk and Ramaswamy’s entrepreneurial vision could help overhaul outdated systems and make the government more responsive.
By incorporating AI, data-driven decision-making, and other advanced technologies, DOGE could potentially save taxpayers billions of dollars annually. Supporters of DOGE point to Musk’s success in disrupting the automotive and aerospace industries, suggesting that the same principles could be applied to outdated government processes.
On the other hand, critics claim that the plan is overly ambitious. Governing a country as diverse and large as the United States requires a different approach compared to running a private company. Some have argued that Musk’s sometimes controversial business style, paired with Ramaswamy’s lack of experience in governance, could hinder rather than help.
Labour unions are also wary of potential job cuts and are prepared to resist changes that might erode job security for government workers. Additionally, there are concerns about privacy and data security, especially if AI systems play a central role in government decision-making.
DOGE also faces institutional inertia. Implementing sweeping changes across federal bureaucracies is often met with resistance, and it remains unclear whether Musk and Ramaswamy can navigate the political landscape to bring about real, lasting reform. The challenge will not only be to propose new efficiencies but also to ensure they are adopted in a way that is fair and transparent. Many government agencies have systems in place that are decades old, and transitioning them to new platforms without disruption will require technological prowess and political finesse.
Furthermore, DOGE has also been tasked with exploring the feasibility of introducing a “Digital Dollar” to streamline transactions and enhance economic inclusivity. By leveraging blockchain technology, Trump hopes that the Digital Dollar could make government payments more efficient and reduce costs related to fraud and money laundering. This bold move has drawn mixed reactions from financial experts, who see potential benefits and significant risks in such a transition.
America First: The path forward
At the core of Trump’s economic plan is the “America First” ethos. Trump has reiterated his promise to prioritise American companies and workers above international considerations. In practice, this means more focus on protectionist policies, heavy scrutiny of foreign trade deals, and incentives for American companies to manufacture goods domestically. By focusing on domestic production, Trump aims to make the American economy less dependent on foreign countries and more resilient in times of global crises.
Trump’s plan also focuses heavily on energy independence, a theme carried over from his first term. He has pledged to remove regulatory barriers to fossil fuel extraction, particularly in states like Texas, Alaska, and the Dakotas, to achieve what he calls “unmatched energy dominance.”
This strategy aims to make the United States a net energy exporter once again, driving down costs domestically and leveraging energy as a diplomatic tool internationally. Trump’s vision extends beyond fossil fuels, as he has also called for increased investments in nuclear energy and other alternative energy forms that can provide baseload power without reliance on weather conditions.
However, this approach has already drawn criticism from environmental advocates. They argue that expanding fossil fuel production will have significant negative impacts on climate change, putting Washington at odds with international environmental agreements.
In an era when the world is moving towards sustainable energy solutions, Trump’s policies may face global backlash and affect relations with key allies committed to the green energy transition. Environmental groups are preparing to challenge any expansion of fossil fuel projects in court, which could delay Trump’s energy agenda.
In addition, Trump has hinted at reshoring strategic industries such as pharmaceuticals and rare-earth minerals. The COVID-19 pandemic exposed vulnerabilities in supply chains, and Trump has argued that key sectors must be protected to ensure national security. To support this reshoring effort, Trump has proposed the creation of “Strategic Industry Zones,” offering tax breaks and grants to companies that build production facilities within these areas. These zones are designed to create high-paying jobs, especially in regions that have struggled with economic decline in recent years.
Trump has also put forward the “American Resilience Initiative,” a comprehensive plan to invest in critical infrastructure projects across the country. The initiative focuses on upgrading the power grid, expanding broadband access in rural areas, and modernising transportation networks to make them more efficient and resilient. This infrastructure overhaul is intended to create millions of jobs, spur economic activity, and ensure that the US infrastructure can withstand future challenges, including climate-related events and cyber threats.
Potential challenges ahead
While Trump’s promises of deregulation, tax relief, and trade policy reform sound attractive to many Americans, his second term comes with significant challenges. The deficit, which has ballooned in recent years, limits the government’s ability to fund new initiatives or provide further economic stimulus without exacerbating fiscal strain. Moreover, America’s relationships with its trading partners are likely to be tested as Trump seeks to impose tariffs that could lead to retaliatory measures. There is also the potential risk of a full-blown trade war if countries retaliate against the universal tariff proposals.
Economists are divided on whether Trump’s policies will yield long-term benefits for the country. Supporters argue that by reducing taxes and regulations, the US can sustain higher growth rates, attract investment, and create jobs—continuing the momentum from his pre-pandemic years. They point to the importance of regulatory freedom for small businesses and entrepreneurs, suggesting that fewer restrictions will result in more innovation and economic dynamism. Sceptics, however, believe that the growth would be unsustainable, ultimately adding to income inequality, raising the deficit, and leaving the economy vulnerable to trade shocks. They also warn of the potential for increased inflation if consumer spending rises too quickly without corresponding growth in supply.
The inclusion of DOGE, with its priority on efficiency and modernity, presents a wildcard. If successful, DOGE could streamline federal operations and potentially reduce public sector spending, thereby alleviating some fiscal pressures. However, the transition from private-sector leadership to effective governance of public programmes has historically been challenging. The effectiveness of Musk and Ramaswamy’s leadership in a government context will play a significant role in determining whether DOGE can deliver on its promises. It remains to be seen if they can translate their private-sector success into public-sector efficiency while maintaining public trust and ensuring that no groups are left behind.
Whether Trump’s policies succeed will largely depend on how they are implemented and the global response to America’s protectionist stances. If Trump can navigate the complexities of global trade while delivering on his promises of economic prosperity at home, the US could experience a resurgence similar to the pre-pandemic years of his first term. However, the risks of escalating trade conflicts, rising deficits, and international isolation loom large. The establishment of DOGE, with its mix of high-profile leaders and ambitious goals, adds another layer of intrigue—and perhaps hope—that government can be made more efficient, though its success remains to be seen.
There is no doubt that the upcoming years will be filled with economic trials, shifting alliances, and bold initiatives. Whether these strategies will secure America’s dominance or lead to further complexities remains to be seen, but one thing is clear—Donald Trump is once again ready to redefine the trajectory of the American economy and its role in the global order.