Economics Weekly: Growth Downgrades and Divergence
US: Pushing limits. US President Donald Trump’s “Make America Great Again” or MAGA agenda, especially his tariff proposals on Liberation Day (2 Apr), have shaken investor confidence...
Chief Investment Office - Hong Kong2 May 2025
  • US: Trump’s sweeping tariffs (125% on China, 145% on US) are shaking global trade and investor confidence with the IMF cutting US GDP growth forecasts and raising recession risk to 37%
  • Japan: BOJ downgraded its GDP and inflation forecasts and delayed its target for 2% inflation to FY2027, signalling a slower pace of rate hikes
  • South Korea: South Korea’s GDP growth forecast was cut sharply after a weak first quarter and the impact of US tariffs with the central bank expected to cut rates further while the government plans a fiscal stimulus
  • Thailand: BOT cuts its policy rate to 1.75%—the lowest in two years—and is expected to ease further due to the risks from escalating US-led global tariffs
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US: Pushing limits. US President Donald Trump’s “Make America Great Again” or MAGA agenda, especially his tariff proposals on Liberation Day (2 Apr), have shaken investor confidence in the foundational pillars—US economic strength, institutional trust, and geopolitical influence—that upheld the USD’s pre-eminence as the world’s dominant currency after World War II.

The first risk is a less exceptional and less stable US economy. The IMF expects Trump’s tariffs to lower US GDP growth to 1.8% in 2025 from 2.8% in 2024, adding that US recession risks have increased to 37% from 25%. The sweeping tariffs have disrupted established trade patterns which major US retailers warn could empty supermarket shelves. Grappling with heightened uncertainty, US businesses will likely delay investment and hiring decisions. US consumers face higher prices, increased job uncertainty, and acute market volatility that directly impact their retirement accounts, such as 401(k)s and IRAs, which are heavily invested in equities.

The high tariffs that the US and China—the world’s two largest economies—imposed on each other (145% on China and 125% on the US) have been likened to a trade embargo that threatens global trade and the world economy. The IMF now sees global growth lower at 2.8% in 2025 vs its previous 3.3% forecast in January, below the historical average of 3.7% from 2000-2019.

The second risk is financial market stability. Trump’s protectionism and unpredictable policy decisions have started to erode the confidence in the US as a prime destination for foreign investment which was painstakingly renewed after the Global Financial Crisis. Trump risks transforming the US from the investment magnet he seeks into a risk international investors may hesitate to take. Furthermore, his approach (i.e. to fix global imbalances through tariffs and pressure so that countries buy more US goods, thereby converting them from USD earners into USD spenders) risks undermining the recycling system that financed America’s deficits. Surging gold prices to lifetime highs reflect the disincentive for countries to add more to their US holdings. The 26.5% rise in gold prices this year looks poised to overtake the 27.2% increase for all of 2024.

The third risk is institutional trust. Since taking office, Trump’s actions saw the US steering towards a new international order. The world is questioning America’s political leadership (which established the post-war global order based on rules, free trade, open markets, and collective security that was grounded in trustworthiness). They raise hard questions for foreign governments that rely on the USD to anchor foreign reserves, global institutions that hold Treasuries as risk-free benchmarks, and private investors who anchor portfolios around US assets and trust the USD as a haven in volatile times.

Overall, the Trump administration is trying to achieve too much too fast, and markets are taking notice. Each initiative carries risks which collectively amplify market concerns about high tariffs and trade negotiations, rising inflation and job insecurity, the Fed’s independence, fiscal discipline, financial sector stability, and the USD’s status.



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