2025: A Year of Geopolitical Gambits and Economic Shifts

The global economic outlook is remarkably benign, considering the noise from geopolitics. President-elect Donald Trump is threatening large import tariffs not only on China, for which they could be as high as 60%, but his neighbours Canada and Mexico. He is also a climate skeptic, and has pledged to invest in the USA’s fossil fuel industry.

It promises to be a turbulent year, at least politically. Tension between the USA and China, the two largest economies, continues. Conflict continues with appalling loss of life in the Ukraine, in parts of North Africa and has resulted in regime change in Syria.

Energy prices are likely to be subdued. Whether tariffs provoke trade wars, or merely curb continued globalized trade, depends on the decisions made in the White House and the outcome of negotiations. Exporters take a long-term view, and the duration of a tariff can be more influential than how high they are.

The incoming US President can be difficult to predict. He is outspoken, but ultimately he is a deal-maker. His intention with trade policy is to rebalance trade, as Chinese manufactured goods imported into the USA have surged since China was admitted into the World Trade Organization in 2001; but it is complicated issue as many sophisticated products have components sourced globally.

Trump’s selection for US Treasury Secretary Scott Bessent is a sensible, relatively mainstream pick. Bessent was formerly a close associate of the billionaire fund manager George Soros, who has funded liberal causes. Bessent has moved away from Democrat policy positions and supports Trump on tariffs and energy policy, but he is not a right-wing ideologue. In addition to the tariff policy, the Trump administration has more conventional conservative policies such as lower taxes and reduced regulation.

The value of bitcoin has continued to soar, given Trump’s support for crypto currencies and the decision of mainstream investment houses to include crypto assets. US stock prices are also high, so asset prices will need to be carefully monitored in 2025.

Many Trump observers make the point that his colorful statements are not always a reliable guide to policy, and recommend: ‘Don’t follow what Trump says, look at what he does.’ The pressure he exerts on Europe by threatening to withhold aid to Ukraine is likely a gambit to force European NATO members to contribute more to defence expenditure. So he exerts pressure on Europe, and tolerates President Putin exerting pressure, but this does not mean he wants Putin to prevail. He wants Europe to prevail – but at a price, and with advantages to the USA.

He has a similar tactic with the Middle East: offering continued support to allies in the region, on terms favorable to the USA, including trade opportunities for US firms. He will take office in favorable circumstances, with Israel having seriously weakened Hezbollah and the Iranian regime, and Assad having fallen, although with unpredictable outcomes for Syria.

A major question for 2025 will be what happens in Ukraine. Trump has pledged to impose a peace deal, without specifying how it could be brought about. A deal would probably mean declaring a new frontier close to the current front lines. This falls far short of the aspirations on both sides, so upholding the peace deal may be even more challenging than negotiating it.

Putin’s influence overseas was diminished last year, but this may prompt him to redouble his efforts and resources to the Ukraine offensive.

On the global economy, if inflation stays subdued and interest rates stay at current levels or can be reduced slightly through 2025, it is likely that growth will continue. The inflation rate for the coming year is, as ever, difficult to anticipate.

Technological change will also continue to have an impact. AI and robotics hold the potential to replace many manual tasks previously done by humans, not only in manufacturing but in care homes – for example cleaning and folding laundry. This may reduce the reliance of wealthier nations on low-paid immigrant workers. AI can also replace roles in accountancy and law.

In China, the economy has slowed, but it remains an economic and manufacturing powerhouse. In December the government eased monetary conditions and President Xi Jinping expressed commitment to supporting growth. The regime will likely want to avoid an all-out trade war with the USA.

The US economy still dominates much of the economic world, however, and one man now dominates US policy. For 2025, there would seem to be bigger risks from geopolitics than from economic policy – although if the tariff policy becomes confrontational the two issues become closely linked.