Trump’s Second Term: How challenging will it be for Trump in the new financial backdrop?

By Nigel Green

As Donald Trump prepares to return to the White House in January 2025, the financial and political world is bracing for the second coming of Trumpism.

However, the political landscape and economic conditions have evolved significantly since his first term, and investors, businesses, and global policymakers are already considering how this administration will differ from the first.

While some hallmark policies from Trump’s initial tenure — including tax cuts, deregulation, and an America-first trade stance — are expected to make a return, the environment in which these policies are implemented will be notably different.

Shift in Yield Environment

One of the starkest differences between Trump’s first and second terms will be the financial backdrop.

In 2016, Trump’s rise to power coincided with a low-interest rate environment, which helped fuel the stock market rally and boosted the appeal of riskier assets. Fast forward to 2025, and bond yields are a far more significant factor in financial markets.

After years of aggressive rate hikes, US 10-year Treasury yields are now above 4%, up from around 2% in 2016. This shift could create new challenges for Trump’s economic policies, particularly his promises to cut taxes and spur growth through infrastructure spending.

Higher bond yields mean that borrowing costs are more expensive, which may dampen the impact of tax cuts and other fiscal policies. Unlike in his first term, where low rates allowed for easy financing of government spending and corporate debt, higher rates could result in a more constrained fiscal environment.

Trade Wars

Trump’s first presidency was defined by a fierce stance on trade, with the imposition of tariffs on steel, aluminium, and numerous Chinese imports.

While trade policy under Trump 2.0 will likely still feature protectionist measures, the nature and scope of those policies are expected to evolve. Trump has already signalled a return to aggressive tariffs, such as a potential 10% universal tariff on all imports and a steep 60% tariff on Chinese goods.

In 2016, Trump’s trade policies were seen as disruptive but relatively isolated, focused largely on the renegotiation of NAFTA and tariffs on specific sectors.

In his second term, the global trade landscape is far more complex, with entrenched supply chains and geopolitical tensions between the US, China, and the EU. The imposition of tariffs at this scale — particularly on Chinese imports — could disrupt international trade on a much larger scale, with significant inflationary consequences.

Economists are already warning that tariffs will push up prices for consumers, while corporate profits may come under pressure as businesses struggle with higher costs. Nomura has projected that the tariffs will likely be “inflationary and negative for growth,” and the trade policy changes under Trump this time around could lead to slowdowns in global trade and economic growth.

Inflation and Growth

Under his first administration, one of his key goals was to boost American economic growth through tax cuts and deregulation. However, the economic conditions of Trump 2.0 are expected to be far more challenging.

The US is facing a hangover from the inflationary pressures of the past few years, with many Americans feeling the sting of rising costs. The high inflation environment that has plagued the economy is expected to persist, and Trump’s proposed tax cuts and aggressive fiscal spending plans could risk further inflating prices.

Unlike in 2016, when the economy was still recovering from the Great Recession, the US is now dealing with a robust yet inflation-pressured economy. Trump’s promise to return to the “good old days” of low inflation and strong growth could be harder to achieve in a world where high energy prices, supply chain disruptions, and higher interest rates are the new normal.

In this environment, Trump’s signature policies of tax cuts and deregulation may face headwinds, as the Fed’s current rate policy and inflationary pressures take centre stage.

Investors will need to adjust to a more complex, less predictable environment as Trump’s policies take shape, especially as trade tensions escalate and global economic conditions evolve.

The world is not the same place it was in 2016, and neither will be the next President’s policies.

(Author is deVere Group CEO and Founder)

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