Global Macro Research
Global Macro ResearchTrump scenarios: What has changed?
We’ve increased the tariffs we expect in our ‘Trump 2.0’ base case and in our ‘Trump unleashed’ downside scenario, having previously marked up the probability on the latter. Accordingly, we see our ‘Trump delivers for markets’ upside scenario as less likely to occur.
Authors
Lizzy Galbraith
Senior Political Economist
James McCann
Deputy Chief Economist
Robert Gilhooly
Senior Emerging Markets Economist
Paul Diggle
Chief Economist
Duration: 1 Min
Date: 10 Mar 2025
Key Takeaways
- Trump’s rapid pace of executive actions, especially on trade, has led us to update our scenarios.
- We now see the US weighted average tariff rate going higher still, to 9.1%. We assume a reciprocal tariff to be implemented, albeit with various carve-outs; higher blanket tariffs on China; and more sector-specific tariffs, including on the EU, Canada and Mexico.
- Moreover, the risk of an even more disruptive trade policy has increased. Our ‘Trump unleashed’ scenario assumes reciprocal tariffs are consistently applied and include non-tariff trade barriers, while USMCA fully breaks down. This results in the US average tariff reaching 22%, above 1930s peaks.
- Limited progress on fiscal policy and immigration reflects divisions in Congress. But we expect progress before year-end and stick to our expectation for modest fiscal loosening and net migration falling to flat.
- DOGE’s actions have curtailed regulatory functions even more than we had expected, although headcount reductions are unlikely to result in major cost savings. Our baseline assumption is for a 10% reduction in the civilian federal workforce and deregulation.
- This mix of policies has caused a sharp increase in business uncertainty and undermined the ‘US exceptionalism’ theme in markets.
- We still see the fundamentals of the economy as sound. But our updated baseline policy expectations, and the skew of risks in our forecast, will present growth and inflation headwinds to the US economy.
Read the full article.
