The world according to Trump

Trump’s hostile takeover bid for the Fed could reflect his true economic-policy aim: strong nominal GDP growth to absorb the country’s debt?

Almost all of the many political and economic events that have occurred this year have Donald Trump’s fingerprints on them. The omnipotent US president is keeping his campaign promises, despite how outlandish some of them are. What’s more, he’s gotten carried away by his own momentum and set additional goals for his term of office. As the autumn gets under way, we’ll try to elucidate the reasoning behind Trump’s actions. Our analysis will point to just one of several possible explanations – and in no way aims to predict what the future may actually hold.

2025 kicked off with DeepSeek Day, which served as a reminder that artificial intelligence (AI) can also be developed (at least to some extent) outside the US – in this case, China. That rattled stock markets in the developed world; Nvidia lost over 40% of its value between January and April, before bouncing back and nearly doubling its market cap over the subsequent four months. Today, investors’ enthusiasm for AI is just as strong as ever, with other investment themes left to pick up the crumbs. Trump has nothing to do with the AI wave, which is sweeping away everything in its path – everything, that is, except Trump!

Then came Zelensky Day, when the Trump administration humiliated the Ukrainian president live on television, forcing Germany to take its military and economic fate into its own hands. America is no longer our friend! While Europe was shaken by these developments, its institutions proved to be too stiff and unwieldy to take any real action. A few days later, we were introduced to Liberation Day, which left the whole world wondering what happened – who has the right to put an end to the happy period of globalisation? The new US tariffs went into effect in July. Trump didn’t chicken out¹; he simply practiced The Art of the Deal, the secrets to which he’s sold over 1.1 million copies². By first stunning his counterparties with the threat of a 60% tariff, he was able to get them to accept a 15% rate without much trouble or even resistance. In the end, it was the stern Ms. Von der Leyen who retreated. China realised that its exports would be targeted more heavily and promised to combat the deflationary pressure that its manufacturing overcapacity has been putting on the rest of the world and its own economy. In the early summer, the US army bombed Iran’s nuclear facilities without provoking unrest in the Middle East. Amid these brazen events, US immigration was halted in its tracks, oil prices dropped, the US dollar weakened, and US tax cuts and deregulation became an ever-closer reality. Trump is implementing his campaign promises – except for the one where he would put an end to the war in Ukraine in 24 hours. Putin is standing firm against Trump and “conspiring” with Xi and Modi. A new geopolitical order is taking shape.

But the US president isn’t stopping at his campaign promises. He has also dismissed high-level civil servants who haven’t sufficiently adhered to his cause, and has taken free stakes in companies receiving government subsidies. After Intel, will defence-industry firms be his next victim, as he looks for new sources of government revenue, on top of the tariff proceeds, to fund the upcoming tax cuts? Yet Trump’s most iconoclastic and potentially most impactful move is his attempt to take control of the US Federal Reserve (Fed) so that he can steer monetary policy, taking his cue from how things work in many emerging markets. What could be driving this act of lese-majesty against an institution that everyone – except Trump – wants to remain independent? The current US president was elected mainly on his attacks against “Biden inflation.” Yet putting aside his efforts to lower oil prices – whose effects now seem to be behind us – a striking pattern emerges. The Trump-engineered drop in the dollar is inflationary; the relocation of large foreign manufacturers to the US and deglobalisation are inflationary; the upswing in German investment and China’s policy to combat deflation are inflationary; the halt to US immigration, the higher tariffs, and the nationalisation of businesses are stagflationary³; and most of all, Trump’s taking control of the Fed will be inflationary, because it’s hard to imagine that a central bank under his influence would implement a tight monetary policy intended to dampen US economic growth. How should we interpret the American president’s all-out economic activism, when so many observers dismiss it outright as devoid of substance?

During the Pax Americana⁴, United States’ allies received trade security and military protection in exchange for funding the twin deficits caused by the country’s “generosity.” But now, that system is no longer working for the US middle class. The economy has been running at full employment for quite some time, but middle-class disposable incomes have been stagnating for decades and many Trump supporters are people whose socioeconomic status has declined: the downside of globalisation. Trump’s strategy appears to be to insulate the country and orchestrate strong nominal GDP growth through a combination of real GDP growth and higher inflation. His new economic paradigm could have the advantage of reducing the country’s debt-to-GDP ratio, which drifted upwards during the long period of weak economic growth and rock-bottom interest rates. Here, it’s worth bearing in mind the words of Scott Bessent⁵: “President Trump understands that national strength comes from the ground up [Main Street] (…) Wall Street can continue to grow and do well.” His goal seems to be to boost consumers’ purchasing power rather than send stock markets soaring, creating a dynamic similar to that during the Trente Glorieuses in France when inflation didn’t prevent the middle class from prospering. Time will tell if that assessment is right. We’ll be able to gauge the success – or failure – of Trump’s explosive economic policy by how quickly the dollar drops and US Treasury yields rise.