As 2025 unfolds, populism – embodied most prominently by Donald Trump – is once again reshaping the American economy in real and measurable ways.
Since the start of 2025, US financial markets have experienced significant turbulence. Although broader economic indicators such as US GDP growth remain resilient, investors have been rattled by Trump’s renewed pledges to impose sweeping tariffs and revisit trade wars that defined his first term.
In February alone, the S&P 500 saw its sharpest monthly decline since 2022, with financial analysts citing “Trump risk” as a major driver. Markets are now pricing in greater uncertainty, with volatility indices that are spiking to high levels.
Investors are shifting capital into safer assets, driving bond yields lower but choking off risk investment in sectors such as tech, manufacturing and consumer goods. Private equity and venture capital have slowed down deal-making, citing a “wait-and-see” approach to Trump’s approach to see how Trump’s policy unpredictability will unfold.
Despite progress in bringing down post-pandemic inflation throughout 2024, the renewed possibility of aggressive tariffs has reignited inflation concerns. Financial markets are beginning to adjust expectations for inflation in late 2025 and beyond. Several major retailers and manufacturers have already warned that the threat of new import taxes is pushing them to pre-emptively raise prices or stockpile inventory – both of which contribute to upward price pressure.
The Federal Reserve, which had hoped to gradually ease interest rates this year, now faces added complexity due to renewed inflation concerns linked to Trump. Rate cuts that were expected to support growth may now be delayed or reduced, risking a slower economy as the Fed remains on guard against a potential resurgence of inflation.
Corporate America, after years of grappling with pandemic shocks and supply chain issues, had entered 2025 with cautious optimism. Now, several major manufacturers, particularly in the auto and electronics industries, have signalled they are putting new investments on hold, concerned that supply chains may be disrupted again by future trade wars.
Automakers in the US, for example, have publicly raised concerns about the uncertainty surrounding US-China relations, with companies in these sectors having indicated that they are delaying decisions on new electric vehicle (EV) plants and investments in battery supply chains until the political picture becomes clearer.
Trump keeps doubling down on pledges for large-scale tax cuts, including proposals for new middle-class tax relief and reductions in corporate taxes. While these promises may have short-term political appeal, they raise profound concerns for the national debt, which already passed $35 trillion in early 2025. Ratings agencies like Moody’s and Fitch are at edge with these tax cuts as a risk to America’s fiscal credibility. Fitch warned that “unfunded tax reductions, alongside a lack of consensus on spending discipline, could materially weaken the US fiscal outlook”. While no downgrade has occurred yet, the mere possibility has added to market nervousness, pushing up the cost of government borrowing.
All this talk on tariffs has had a chilling effect on long-term trade relationships. Even though the official enactment of most of these tariffs keeps being postponed so far, the mere anticipation of such measures leads to less willingness from allies to engage in new trade agreements or investment partnerships. The uncertainty also harms American exporters, who are caught in the crossfire of tit-for-tat threats and may lose market share to foreign competitors viewed as more reliable.
The economic cost of populism in 2025 is already taking shape. Markets are anxious, US inflation fears are reigniting and the US business investment is stalling. Populist leaders like Trump often promise quick fixes to complex economic problems – whether through tariffs, tax cuts or nationalist rhetoric. But as we are seeing now in real time, the cost of that approach is uncertainty, instability and economic hesitation that affects every American household and business. May this serve a lesson for all.
