Market Stories By Fathom 27/02/2025

During the first four weeks of Trump’s presidency, his administration has pushed through a flurry of executive orders and made some key moves on trade, mainly targeting tariffs, immigration, the federal budget, and, more recently, the war in Ukraine. Here’s a breakdown of where things stand and what it all means for the economy.

So far, the U.S. has slapped an extra 10% tariff on all imports from China and a steeper 25% tariff on steel and aluminum. Trump also announced tariffs on Canada and Mexico but put them on hold for 30 days. Additionally, he plans to impose tariffs on European car imports in April and has threatened more tariffs on any country that retaliates against the U.S. While some of these measures might be negotiating tactics, it’s clear that the administration intends to use tariff revenue to fund tax cuts, so it’s unrealistic to think they won’t go through in some form. These policies will likely push consumer inflation higher (we’ve already seen U.S. 2-year inflation expectations rise). More significantly, they could slightly slow economic growth as businesses hold off on investments until there’s more clarity. However, the push for onshoring production and the AI boom might help offset some of this uncertainty.

On immigration, the focus has been on reducing the inflow of migrants rather than large-scale deportations, which haven’t reached the levels originally promised. This is a big deal for the labor market since much of America’s population growth over the past decade has come from immigration. If policies are implemented that successfully cut immigration and ramp up deportations, the labor market could tighten significantly. This would likely drive wages up, adding to inflationary pressure, but it could also slow job creation, corporate profits, and demand for housing and consumer goods.

Tackling the ballooning fiscal deficit is another priority, but it’s a massive challenge, especially after the COVID-era spending spree. The recent buzz from the erratic Musk advisor about cutting $50 billion might make for attention-grabbing headlines, but in the grand scheme of a $2 trillion deficit, it’s barely a drop in the bucket. The U.S. has already overshot its budget by $250 billion in just the past three months. Even more concerning is Trump’s eagerness to immediately redistribute any savings, showing that these deficit targets are constantly shifting. Fixing the structural imbalances will take serious effort, and based on Europe’s experience, it’s not an easy task. The 3% deficit target set by Bessent sounds good in theory, but realistically, it seems out of reach unless the U.S. is willing to trigger a self-inflicted recession.

Perhaps the most striking shift has been America’s changing stance on Europe. The decision to push for peace talks in Ukraine without involving Ukraine or European representatives was a blatant snub, disregarding the lives and money that have been sacrificed over the past three years. Then there was J.D. Vance’s speech in Munich, a direct attack on European democracy from a vice president in the same party that once fueled the Capitol riot. And let’s not forget the absurd claim that the EU was created just to take advantage of the U.S., justifying new tariffs. At this point, it looks like the U.S. government has been hijacked by a faction of extremist’s intent on reshaping what was once considered the Western alliance. The arrogance is obvious, but if the rest of the Western world recognizes the scale of the threat, the outcome may be very different from what these hardliners expect.

Alexandros Tavlaridis