Navigating the Global Economic Fallout Of US Policies

Marcelo Carvalho is a globally recognised macroeconomist and thought leader in international finance. With a PhD in economics and decades of experience across global financial markets, he has held senior leadership roles at the IMF, JPMorgan, Morgan Stanley, and BNP Paribas, most recently serving as Global Head of Economics. A sought-after speaker, he brings deep expertise in economic strategy, market dynamics, and global policy trends.

The phrase “Move fast and break things” may have originated in Silicon Valley, but it could just as easily describe the pace and approach of the second Trump administration so far. From an unprecedented volume of executive orders to a fundamental break with previous norms, the administration’s economic policies are already reshaping market expectations and global strategies.

In this editorial, Marcelo Carvalho dissects the economic implications of these shifts, offering a macroeconomic lens on what lies ahead for policymakers, businesses, and investors.

Here are a few key points to consider:

• This time is different: Trump 2.0 is not Trump 1.0. Compared to his first administration, Trump now has majority in both the lower house and in the senate, enjoys stronger support at the supreme court, has a clear popular mandate, has filled his cabinet mostly with loyalists, and is better prepared than before to hit the ground running.

• Trade policy: when tariffs are a hammer, all imports look like a nail. Trump has been delivering on his campaign promise to use import tariffs as a main policy tool, on allies and well as on opponents, either as a bargaining tool to extract concessions from trade partners or else to protect domestic sectors from foreign competition. Unhappily, most economists agree that tariffs work as a negative supply shock, hurting activity by distorting supply chains while pushing up domestic prices. 

• Immigration: mass deportation is unpractical, but crackdown hurts. Promised mass deportation in short order does not look feasible, in light of logistical complications. However, a crackdown on immigration flows along with harsh rhetoric towards immigrants can play a meaningful role. Domestic sectors most seriously affected are those that rely most on lower-skilled immigrants, such as agriculture, construction and hospitality. Above all, beyond tariffs themselves, unpredictability about trade policy does not bode well for investment plans. 

• Fiscal expansion: debt-financed tax cuts can worsen the debt dynamics. Corporates will always welcome tax cuts, of course, but for the broader economy it matters too how these are financed. Despite efforts to cut jobs in the federal government, tax cuts most likely will result in pressures on the fiscal deficit, financed with debt issuance. While not an imminent concern, deteriorating debt dynamics have an unpleasant habit of coming back to hunt the public coffers.

• Monetary policy: inflationary pressures could build tensions with the Fed. Barring a sharp growth downturn, not to mention an outright recession, concerns on lingering inflation would likely constrain the Fed’s ability to cut interest rates, potentially putting the central bank on a collision course with the White House’s preference for easier monetary policy.

• Geopolitics: expect global fragmentation into spheres of influence. Above all, perhaps the most consequential policy shift currently underway in the United States is the abandonment of eight decades of a post-WWII, US-led international order. Europe will have to rearm itself, and the global geopolitical landscape will likely gravitate towards a system of regional spheres of influence.

In sum, Trump is moving. Fast. And breaking things.

The views expressed in this article are those of the author and do not necessarily reflect the position or policy of Selion Global.