Economic tensions to intensify worldwide

It is natural for people to be curious about what may happen in the world economy and trade in the coming year. Particularly, with Donald Trump being re-elected as the President of the United States, there is speculation about whether the situation will worsen. The question being raised is whether Trump will launch a full-scale trade war. According to a report by the Financial Times, there is a possibility of a full-scale trade war, but it is not guaranteed. The FT refers to a full-scale trade war as a scenario where, by the end of the year, the United States will impose at least a 10 per cent tariff on all imported goods. Trump has threatened to impose up to a 25 per cent tariff on goods from Canada and Mexico, excluding China. These two countries account for 30 per cent of US imports. They, too, will continue to exert pressure on Trump in various ways. However, FT suggests that due to the additional tariffs, Trump is likely to continue the tariff battle. Hence, they do not believe that these tariffs will be withdrawn by the end of the year.

The next significant concern is the Federal Reserve's interest rate policy. Since September 2024, the Federal Reserve has reduced interest rates multiple times. As a result, the question arises whether the interest rate in December 2025 will be lower than that of December 2024. FT believes this is unlikely. However, the reality is that if Trump proceeds with his election promises such as raising tariffs and reducing corporate tax rates, inflationary pressure will increase. The FT article indicates that the Federal Reserve will remain cautious in this regard, while it is expected that the European Central Bank and the Bank of England will continue the trend of lowering interest rates.

The most talked-about event in the global economy towards the end of last year was the rise in Bitcoin’s price. Especially after Trump’s election, the price of Bitcoin increased by more than fifty percent. In this context, there is speculation that Bitcoin’s price could reach $200,000. The efforts to weaken the dollar and intensify internal competition could lead to high inflation and put financial markets at risk. Any real or threatened attempt to challenge the independence of the American Federal Reserve would also increase inflation. The impact of geopolitical factors is equally uncertain. Trump may take geopolitical risks that influence the economy and markets, such as the Russia-Ukraine war and conflicts in the Middle East. If Trump follows through on his economically harmful policy proposals in the face of political and economic constraints, he will face significant challenges.

The US economy in 2025 may be relatively better. However, good prospects could be negatively affected by various factors. The impact of the next US administration on economic growth and inflation remains unclear. The reason is that some of President-elect Donald Trump’s proposed policies may lead to higher growth and lower inflation. On the positive side, it can be observed that Trump will generally be pro-business. This could lead to stimulating economic activity by freeing it from harmful forces, which in turn would boost business investment and innovation. If he and the Republican Congress succeed in raising corporate and personal income taxes in 2025, growth could increase significantly.

If Donald Trump can rein in the excesses of his uncontrolled agenda, bureaucratic complexities could be alleviated. This would increase competition and potentially lead to price reductions in the long term. Trump aims to increase US oil and gas production by an equivalent of 3 million barrels per day, which could help reduce prices. It might also make domestic energy sectors more competitive. Some believe that the transition to green energy in most sectors under the previous administration could have been possible without subsidies. Even under the leadership of Elon Musk and Vivek Ramaswamy, an external advisory committee cannot come close to reducing the federal budget by $2 trillion, despite the commitment of the government’s efficiency department. If the government efficiency department can identify even $200 billion worth of cuts, it could reduce inefficiency in the public sector.

Technologists advise Trump to focus on industries such as artificial intelligence, robotics, automation, and biomedical research, where the US could advance. However, there is also a significant risk that the new administration might face resistance from regulators or civil society groups, and overcoming such opposition will not be easy. Similarly, strict immigration restrictions could be imposed, increasing labor costs and exacerbating the risk of labor shortages in key sectors. If taxes are reduced and other financial commitments are implemented without sufficient means of funding, public debt could rise by almost $8 trillion in the next decade. This, in turn, would increase inflation and push long-term interest rates higher.

This will hinder future investments and reduce growth. The reckless efforts to weaken the dollar and intensify internal competition could lead to high inflation and place financial markets in jeopardy. Any real or threatened attempts to challenge the independence of the American Federal Reserve will also escalate inflation. The impact of geopolitical factors is similarly uncertain. Trump may take certain geopolitical risks that could affect the economy and markets. The inflationary impact of the Trump administration will depend on the relative balance of its positive and negative policies. If people's perspectives are limited by 2025, the impact of Trump's economic agenda could be harmful to growth.

Moreover, the Federal Reserve's goal of 2 per cent inflation will slow the pace of economic recovery. Under favorable conditions, growth potential may remain elevated, but it will be lower than in 2024. As long as Trump's most radical policies remain in place, it will be difficult for the US economy to develop. However, if unexpected events, such as geopolitical shocks, can be avoided, the US economy may prosper in the coming year.

As anticipated, the Bank of England (BoE) kept its main interest rate unchanged at 4.75 per cent on Thursday and indicated it would continue with its existing policy of gradually reducing rates. In Asia, Japan's central bank (BOJ) maintained its ultra-low interest rates due to concerns that Trump's policies could affect the export-dependent economy. The BOJ, in its statement, highlighted that uncertainty regarding Japan's economy and inflation remains high.

A survey by Reuters has shown that nearly three-quarters of Japanese businesspeople believe that Trump will have a negative impact on their business environment. Towards the end of last year, both the European Central Bank (ECB) and the Bank of Canada reduced interest rates, with both expecting some additional cuts in 2025 due to a weakening economic outlook. After a disagreement with Prime Minister Justin Trudeau on how to handle potential risks from US tariffs, Canadian Finance Minister Chrystia Freeland resigned. Following this, Trump warned that he would impose a 25 per cent tariff on goods imported from Canada and Mexico if those neighboring countries do not restrict the flow of immigrants and fentanyl into the United States.

Meanwhile, there has been a significant decline in crypto-related assets. Bitcoin, for example, experienced a 5 per cent drop, marking its largest fall in three months. Against these speculative scenarios, the reality is that under capitalism, there will be no peaceful resolution to economic relations. The rise of China's manufacturing industry is not going to rebalance the US, but rather intensify economic warfare, potentially leading to direct military conflicts aimed at maintaining global dominance. The only way to ensure the balanced development of the world's productive forces within globalized production is by establishing international socialism—ending national divisions and profit systems, which could lead to the emergence of World War III. This perspective will make the need for active political struggle more evident in the coming days for the international working class, in China, the US, and around the world, as global capitalist conflicts escalate explosively.

Rayhan Ahmed Tapader: Researcher and Columnist