The Unpredictability of Trump's Trade War and Its Far-Reaching Consequences

Strategic Insights -

The unprecedented trade policies of President Donald Trump are unleashing chaos on the global economy. With his lawless and unpredictable approach, Trump is putting the world economy at risk, and the consequences are already being felt. The World Bank has issued a dire warning, projecting that global growth will slow to 2.3% in 2025, the slowest pace since 2008, with emerging economies being hit the hardest. The report highlights the risk of a doom-loop, where higher costs of finance increase risk and lower growth, potentially driving weak borrowers into default.

Key Takeaways:

  • The World Bank projects that global growth will slow to 2.3% in 2025, the slowest pace since 2008, with emerging economies being hit the hardest.
  • The uncertainty created by Trump's trade war could lead to far greater declines in trade and investment than projected, with risks overwhelmingly to the downside.
  • The poorest countries will suffer the most, with per capita GDP levels 6% lower by 2027, and it might take two decades for these countries to recoup their losses of the 2020s.
  • Growth in developing economies has been ratcheting downward for three decades in a row, from 5.9% in the 2000s to 3.7% in the 2020s, tracking the declining growth of world trade.
  • Debt is piling up, and in the long run, it will not help that Trump insists climate change is a myth.
  • The United States' retreat from its historic role as a global leader is creating opportunities for other powers, such as China, the EU, Japan, India, and the UK, to take on greater responsibilities.
  • A better way to resolve excessive debts is necessary, requiring greater cooperation among nations, rather than the current trend toward greater suspicion of one another.

Statistics:

  • Global growth: 2.3% in 2025 (0.4 percentage points below the January 2025 forecast)
  • Per capita GDP in high-income economies: roughly where it had been expected to be before the Covid-19 pandemic
  • Per capita GDP in developing economies: 6% lower by 2027
  • Growth in developing economies: 3.7% in the 2020s (down from 5.9% in the 2000s and 5.1% in the 2010s)
  • Debt piling up: no specific data provided
  • Uncertainty index across emerging market and developing economies: soaring in the 2020s for 2025 and 2026 emerging and developing economies
  • Average annual reduction in extreme poverty rates: 0.4% (2025) and 0.5% (2026) in low-income countries

Sources:

  • Mahler, Yonzan, and Lakner (2022); World Bank
  • World Bank
  • Ahir, Bloom, and Furceri (2022); World Bank