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Yuen, Andrew Chi-lok
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Will Trump 2.0 be wiser or stronger?
• 8 mins read
The new leader of the global superpower must deal with pressing issues at home and abroad. Can he rise to the occasion and meet the expectations?
Donald Trump has returned to the helm of the world’s largest economy. The 47th president promised to make America great again, and his policies would impact beyond the border. Looking at his first term, which was quite controversial, the world watches whether his new term will lead to disruption or pave the way for unexpected progress.
“When analysing someone’s behaviour through the lens of economic mindset, we shouldn’t listen to what they say but pay attention to their actions and, more importantly, to what they care about,” says Dr. Andrew Yuen, Director of EMBA Programme and Principal Lecturer of Department of Decisions, Operations and Technology at the Chinese University of Hong Kong (CUHK) Business School. “We are lucky to have a historical record of Trump’s previous term to see what he has done and gain some insight into what he would do.”
In February’s EMBA masterclass titled Navigating uncertainty: Where is Trump leading the US and the world economy? Dr. Yuen suggests that the answer to the topical question can be seen from his most important appointments: the vice president and the secretary of state. Vice President JD Vance has a presiding role in backing up and taking over the role if the president is unable to perform his duties, while the Secretary of State Marco Rubio is the principal advisor in all foreign affairs.
Including Vance and Rubio, the Trump 2.0 administration is manned by those in their mid-40s, while the Trump 1.0 cabinet was filled with older members, including the 59-year-old vice president and 65-year-old secretary of state when elected.
“As Trump now has more experience, he is more confident in leading the team to govern the country,” says Dr. Yuen. “It seems that Trump is looking for something beyond himself and thinking about succession by appointing younger staff and cultivating them to make his legacy sustainable.”
On the other hand, known for his hawkish stance on China, Rubio is currently on the list of sanctions by the Chinese government for his role in proposing and supporting sanctions on China when he was a congressman. “The relationship between China and the US will be challenging in the next few years,” Dr. Yuen adds.
One of the key highlights of Trump’s campaign is his stance on imposing hefty tariffs. After all, it was during his previous term that the trade war against China broke out. During his campaign for the 2024 election, he promised tariffs of as much as 10 per cent on global imports and 60 per cent on Chinese goods, plus a 25 per cent surcharge on Canadian and Mexican products. Many worry that this move will lead to higher prices and, eventually, inflation.
Can tariffs make America great again and again?
“Tariffs could, but not necessarily, lead to inflation,” says Dr. Yuen. In his first term, Trump had increased tariffs yet inflation was mild, around 2 per cent, and even almost dropped to zero in 2020. After Biden became president in 2021, inflation increased to more than 8 per cent before falling to around 3 per cent by the end of 2024, likely due to the pandemic relief and the central bank’s policies, among many other things.
“The basic understanding of inflation is the year-over-year price change. After tariffs are introduced, inflation will only happen in the first year,” he adds. “After the following years, the impact will be diminished as tariffs only have a one-off impact on inflation.”
“It seems that Trump is looking for something beyond himself and thinking about succession by appointing younger staff and cultivating them to make his legacy sustainable.”
Dr. Andrew Yuen
A 2021 academic paper published in American Economic Review analysed the impact of the 20 per cent tariff on consumer inflation in the US and found no significant effect. The study discovered that Chinese manufacturers increased their prices after the tariffs, but American importers did not pass through the costs to their consumers. The US firms lowered the profit margin and practically paid the tariff, cushioning the impact on consumer inflation.
However, inflation could rise due to unprecedented factors. As Trump pledged to deport illegal immigrants, which stood at 8.3 million in 2022 or five per cent of the 170 million US working population, having this significant workforce left will have a negative unemployment rate, where the demand exceeds the supply of labourers. “Consequently, when companies cannot hire people, they need to increase salaries, which would trigger higher inflation,” says Dr. Yuen.
Putting caps on inflation and debt
As inflation rises, the central bank often responds by increasing interest rates to encourage saving, which reduces consumer spending and business investment. Trump has demanded that interest rates drop immediately to drive investment and consumption in January 2025. However, there are clear regulations about how the central bank issues its monetary policy.
The US Federal Open Market Committee decides the interest rate policy, and the president can appoint seven or 60 per cent of its members. Nevertheless, the president cannot replace anyone in the committee or the Federal Reserve Board of Governors unless they resign or retire. “Although Trump wants to lower interest rates, the institutional arrangement forbids him from influencing the central bank,” says Dr. Yuen.
Wasteful spending by the previous administration, as Trump blamed many times, allegedly led to a record high of US$36.22 trillion in outstanding borrowing by the US federal government. “The US has a high 124 per cent debt-to-GDP ratio as of December 2024, while the international benchmark for a healthy level is 90 per cent,” says Dr. Yuen.
Yet, there is much confidence in the US government bonds being not default. Such a faith may also be reasonable as the Wharton School of the University of Pennsylvania analysed that the threshold for the debt-to-GDP ratio to default the government bond is about 200 per cent. “Although the US Government is not likely to go ‘bankrupt’, we need to pay attention to the crowding out effect and US dollar dominance in the global economy.”
In addressing wasteful spending, a celebrated businessman, Elon Musk, was tasked to lead a new Department of Government Efficiency to cut expenditure by US$2 trillion from the US$6.4 trillion federal budget. As a result, the department decided to freeze international aid and dismantle the US Agency for International Development, in addition to laying off tens of thousands of federal workers.
The true face of Trumponomics
Despite the fanfare of the masterplan for a radical reformation, Dr. Yuen sees Trump’s ideas as not new. “In the past, US president Ronald Reagan had his ‘Reaganomics’, or what the economists call the supply-side economics. What Trump is doing with Trumponomics now is exactly what Reagan did before.”
There are four major areas of supply-side economics, Dr. Yuen explains, namely cutting government spending, tax reduction, trickle-down economics, and deregulation. In 2017, Trump signed the Tax Cuts and Jobs Act into law, significantly lowering corporate tax rates from 35 to 21 per cent. The general idea is by lowering taxes, the company will be more profitable and then could pay more profit tax for federal revenue. Trump proposed a further tax reduction of 15 per cent for businesses focused on US-based operations.
Trickle-down economics involves less regulation and tax cuts for those in high-income tax brackets and corporations to make them spend more, trickle down the money to the broader population and stimulate the economy. Unfortunately, many studies and analyses have shown that tax cuts and trickle-down concepts never materialised as intended.
Deregulation is the same song that Trump played in his first term by removing several regulations in finance, environmental protection, and healthcare. A couple of weeks after moving to the White House in January, Trump signed the executive order to withdraw the US from the Paris Climate Agreement.
However, a new pattern emerges. Trump currently aims to eliminate 10 regulations for each new regulation issued, or the so-called 10-to-1 deregulation initiative. This is a dramatic change from his previous 2-for-1 deregulation in his first term. “In the past, Trump’s major objective was to remove old regulations,” Dr. Yuen says. “This time, he wants to minimise the new regulations so that significant changes can be made to the technology and artificial intelligence industries.”
Keeping the legacy alive
Since the new industries have no regulations to remove, Trump is not intended to over-regulate them. Similar hopes can be seen in digital assets and cryptocurrency. Trump has announced that five digital assets will be included in a new crypto strategic reserve. “Many Bitcoin holders like Trump because he’s a friend of digital currency and is open-minded about the strategic positioning of digital currency at the national level.”
Overall, Dr. Yuen sees that Trump is leaning more toward pro-business, emphasising small government, lower taxes, deregulation, and government downsizing while promoting protectionism through tariffs and immigration control. “The possible impact is a short-term economic boost,” he adds.
“However, deregulation raises concerns about whether the market has enough protection during economic downturns, but if not, it will lead to an economic crisis. This could result in high inflation and high interest rates, as well as deglobalisation and weakening the US dollar’s international status.”
