What’s about to hit the world economy?

Critics accused Donald Trump of being too chaotic to get much done. The speed of his first appointments should disabuse them. The next administration means business.  Stock and corporate-bond markets are broadly delighted with the prospect of deregulation and tax cuts in a second Trump term. The Economist, by contrast, has warned of a risk that mass deportation and a global trade war would do real harm. The appointments themselves attest to Mr Trump’s desire for disruption, a hard line on China and absolute loyalty . With such a concatenation of signals, you may wonder what is about to hit the world economy.

The answer comes in three instalments, beginning with Mr Trump’s intentions. His commitment to deregulation may be good for growth. Elon Musk, the world’s richest man, and Vivek Ramaswamy, an entrepreneur-politician, have been named heads of a new outfit grandly named the Department of Government Efficiency, or DOGE. A pledge to cut $2trn from the government’s annual budget is patently absurd, but judicious liberalisation could be benign. Mr Trump has also promised to free up artificial intelligence. The technology is immensely power-hungry. Just imagine if easier planning rules helped unleash a revolution.  Unfortunately, Mr Trump also wants to deport millions of irregular migrants and impose tariffs of up to 60% on China and 10-20% on the rest of the world. All of these would be bad for growth. 

A second part of the answer is that the tensions in Mr Trump’s agenda will be resolved by necessity, as the hyperbole of stump speeches comes into contact with the messy reality of governing. Policies take so much effort to enact that his administration will simply be unable to do everything all at once.

The third part of the answer is that, mixed in with the intentions and priorities is the mercurial temperament of Mr Trump himself. He has a fondness for picking favourites and then dumping them. He is also beholden to nobody. In spite of his appointment to the White House of Stephen Miller, a longtime loyalist and a hardliner on immigration, Mr Trump may put growth first by making a furious noise about deportation, but limiting its real-world effect. It is the same with Mr Musk, whom markets sense may receive special favours. But will the bromance last? The only discipline on a president who has succeeded so spectacularly by defying the experts around him will be those same markets. Mr Trump has an old-fashioned regard for share prices as a barometer of success.

The conclusion markets seem to be drawing is that things will work out just fine. Although they are alive to risks of inflation and cronyism, investors are betting that tariffs and deportations will do little damage. Instead, the tax cuts will produce a sugar rush that boosts corporate profits and deregulation will bring about lasting growth.