Acronyms have a knack of coming back to bite. US President Donald J Trump rode to power promising to punish China, censure Europe and Make America Great Again. In less than two months, the US economy has migrated from what was defined as “US exceptionalism”, with a roaring GDP and booming stock markets, to one where the definition is stranded between fears of recession and stagnation.
Trump, who said a few days back there may be “some pain”, has stepped up to brush off fears of an imminent recession. This week he said, “I don’t see it at all,” adding, “Remember, Trump is always right.” That said, the fears of inflation spiralled as Treasury Secretary Scott Bessent waffled around the term “transitory”. Yo-yoing between rising prices and slowing growth, many people now worry that the Trump playbook to Make America Great Again could be morphing into Make America Grieve Again! Meanwhile, top EU diplomat Kaja Kallas said that China, the original target, was “laughing at the US trade wars”.
The US president has apportioned himself the image of a strongman. He targeted Mexico and Canada in his opening gambit. He imposed tariffs on Europe, pummelled the European Union and mocked the leaders of the US’s oldest allies that are the large economies of France and Britain. The issue is not just what he says, but when he says what he says—from the insistent “I think Greenland will happen” in the presence of NATO Secretary General Mark Rutte, to “The only thing that makes sense for Canada is to become the 51st state” while discussing tariffs.
Every leader who stands up to Trump finds his or her approval rating rising. In Mexico, Claudia Sheinbaum is enjoying the support of 85 percent of her country, the highest for any Mexican president in three decades. In Canada, the Liberal Party took a lead over the Conservatives for the first time since 2021, overturning a 26-point deficit it was suffering from just six weeks ago. The Conservatives are facing anti-Trump headwinds and the Liberals an anticipation bump-up from the induction of Mark Carney as their new leader.
In France, Emmanuel Macron, who has had a disastrous year as president, was given his highest approval rating since June 2023. In Britain, Prime Minister Keir Starmer, who has had a torturous entry into 10 Downing Street and an uninspiring 180 days, found fortune smiling on him. An IPSOS poll last week bestowed him with a 7-point bump-up in approval from a low of 23 percent. Incredibly, The Economist , perhaps for the travelling talkies on support for Ukraine, even coined the new moniker ‘Winston Starmer’ and put him on the cover in a Churchillian avatar.
Meanwhile, Trump’s ratings are sliding. A Gallup-CNN poll says 54 percent Americans disapprove his handling of the presidency, 15 points higher than the historic average for presidents in the first 100 days. A Quinnipiac survey states 76 percent are worried about the state of the economy, a YouGov-Economist poll says he is not popular among 51 percent of the people, and Nate Silver’s Silver Bulletin places his ratings “underwater” with 49 percent negative.
Trump projects himself as a man who can move markets. A good way to test this is to measure performance of exchange-traded funds. Turns out the US markets are moving, but in the wrong direction. On Thursday, the benchmark index S&P500 slid over 10 percent. The billionaires who attended Trump’s inauguration have collectively lost over $200 billion of their worth since then. Worse, on a year-to-date basis, returns on a Chinese large-cap ETF is at 19.3 percent and on Europe ETF at 12.5 percent, while that on the S&P500 ETF is at -5.6 percent. This week, Citigroup put a pause on American exceptionalism and upgraded China.
Trump has a point when he says Europe must pay for its security umbrella. But it’s also true that the bulk of defence dollars forked our by Europe goes to the US. This could change if the EU walks the talk. The threat-and-stick approach has catalysed €150 billion in loans to member states for defence investment and a long-term plan of spending €800 billion to re-arm Europe to counter the possible US disengagement from NATO and EU. Obviously, the allocations will favour EU entities and erode US firms’ footprint. Thanks to the emerging opportunity, EU defence stocks are soaring. It isn’t surprising that Germany’s Rheinmetall is up 124 percent, overtaking Volkswagen in market cap.
Trump believes that levelling the field for trade will enable the US economy to expand its global footprint, acquire resources and balance the two sides of the balance sheet. But history informs—from the days of the Fordney-McCumber Tariff Act of 1922, followed by the Smoot-Hawley law of 1930—that protectionism breeds trade compression and depression, and results in recession.
Trump’s strategy is often indistinguishable from his rant—in the umpteen u-turns and whimsical announcements in the tariff wars, nobody can quite trace a storyline. Uncertainty haunts investment, halts hiring and hinders growth. While there is a large constituency that believes in the Trumpian pitch, those with skin in the game worry that the system America benefited from is unravelling. What’s in play is the trump of unintended consequences.
Shankkar Aiyar
Author of The Gated Republic, Aadhaar: A Biometric History of India’s 12 DigitRevolution, and Accidental India
(shankkar.aiyar@gmail.com)