Silke Mayr Donald Trump’s proposed tariffs are expected to significantly reshape international trade in 2025. The combination of inflation, interest rates, and new trade policies marks 2025 as a pivotal year for the global economy. According to the International Monetary Fund, global growth is projected to stabilize at 3.2%, a figure deemed “stable yet underwhelming.” How will these shifts affect us all?
Inflation and Interest Rates: Persistent Challenges
Just before Christmas, American borrowers received a gift: the Federal Reserve cut interest rates for the third time in a row. However, markets fell as Federal Reserve Chair Jerome Powell warned against expecting further cuts in 2025, citing the ongoing battle against inflation.
“We’re entering a cautious phase regarding additional rate cuts,” Powell stated. While inflation has slowed globally, November saw increases in the US, eurozone, and UK, with rates rising to 2.7%, 2.2%, and 2.6%, respectively. Central banks continue struggling with the “last mile” of their inflation targets, aiming for 2%.
Uncertainty remains the biggest challenge for global growth. Luis Oganes, head of global macro research at JP Morgan, highlights concerns about policies under “Trump 2.0.” Since Trump’s election win, he has threatened new tariffs on major trading partners like China, Canada, and Mexico. These tariffs could support short-term US growth but harm trade-reliant nations.
Maurice Obstfeld, former IMF chief economist, warns of potential disruptions, particularly in industries like car manufacturing, which depend on integrated supply chains across North America. Tariffs could increase prices, reduce product demand, and hurt profits, dragging down investment.
China’s Economic Outlook and the Trade War
China faces mounting challenges as tariffs threaten demand for its exports. In his New Year address, President Xi Jinping acknowledged uncertainties in the global environment but insisted the economy remains on an upward trajectory. The World Bank has slightly raised its growth forecast for China to 4.5% in 2025, although domestic challenges persist, including weak consumer spending and business investment.
The Chinese government is actively seeking foreign investment to offset these issues. However, tensions with the US and other nations have pushed some companies to relocate production. Still, as Michael Hart, president of the American Chamber of Commerce in China, notes, “China’s dominance as a supplier took decades to build, and there’s no quick alternative.”
Electric vehicles remain a focal point of trade battles, with China producing over 10 million units last year. The US, Canada, and the EU have imposed tariffs on Chinese electric vehicles, which Beijing calls unfair and is contesting at the World Trade Organization.
Europe and the US: Diverging Economic Paths
Europe’s economic recovery remains fragile. Germany and France, historically growth engines, have faced political and economic instability, slowing the eurozone’s momentum. Higher wages and inflation, still at 4.2%, hinder further interest rate cuts. In the UK, rising taxes and wages may exacerbate inflationary pressures.
In the US, wage inflation persists, driven by labor shortages and rising living costs. According to Sander van ‘t Noordende, CEO of Randstad, companies often pass these costs to consumers, further fueling inflation. A dynamic global job market hinges on stronger economic growth, encouraging businesses to expand and hire.
Donald Trump’s upcoming term introduces new uncertainties. His plans for tax cuts and deregulation aim to boost US economic growth, potentially at the expense of global stability. “US exceptionalism could come at the world’s cost,” warns JP Morgan’s Oganes. Policies from the Trump administration will heavily influence inflation, interest rates, and the global economy in 2025.