Trump's economic impact even before entering the White House

Not yet officially in the White House, but Mr. Trump's intentions have caused a Canadian minister to resign, the cryptocurrency market to tumble and the Fed to be more cautious.

This week, the world began to face specific economic impacts from the incoming administration of President-elect Donald Trump, according to Reuters . In Canada, Finance Minister Chrystia Freeland suddenly resigned on December 16, after disagreements with Prime Minister Justin Trudeau over how to respond when Mr. Trump threatened to impose a 25% tax on imported goods.

She left her seat just hours before she was scheduled to deliver her fall economic update to Parliament, which showed the government's 2023-24 budget deficit would be $61.9 billion, much higher than forecast.

New tariffs from the US are a serious threat, according to Canada's finance minister. Before resigning, Ms. Freeland wrote in a letter to Mr. Trudeau that Canada should avoid "costly political games" and focus on protecting the economy from the potential risks of Mr. Trump's tax policies.

President-elect Donald Trump in Greenvale, New York on December 5. Photo: AP

In the cryptocurrency market, Bitcoin spent three days above the $105,000 mark, at one point setting a record of more than $108,268 per unit when the Trump administration planned to establish a strategic Bitcoin reserve.

BTC then fell to nearly $104,000 when Federal Reserve Chairman Jerome Powell said the agency had no legal authority to hold Bitcoin and had no plans to change the law to do so. The statement contributed to a 5% drop in Bitcoin prices, the biggest drop in more than three months.

The Fed cut interest rates for the third time this year on December 18, by 25 basis points (0.25%). The move came amid a busy year-end meeting for major central banks from Ottawa and Frankfurt to Tokyo and London, suggesting they are starting to deal with the growing uncertainty as the world’s largest economy enters the Trump era.

In the US, the risk of higher-than-expected inflation in 2025 has the Fed reducing expectations for a deeper rate cut. Fed Chairman Jerome Powell revealed that the agency's leaders have begun assessing the impact of Mr. Trump's plans, such as raising import taxes, cutting corporate taxes and tightening immigration, on monetary policy in the coming months.

As a result, they forecast higher economic growth next year, but also estimated a significant increase in inflation. This prompted Mr. Powell to repeatedly emphasize the need to be cautious in committing to rate cuts. Stocks subsequently fell. Experts lowered their expectations for only one more Fed rate cut in 2025.

Last week, the European Central Bank (ECB) and the Bank of Canada cut interest rates and forecast further easing in 2025 as the economic outlook weakened. ECB President Christine Lagarde highlighted risks to growth, including trade tensions with the US under Mr Trump.

EU Ambassador to the US Jovita Neliupšienė said last month that the European Union would be ready to react in the event of some trade conflicts. The US is the EU's most important trading partner, with $1.7 trillion in two-way trade in goods and services and $5 trillion in two-way investment.

Europe would be a big loser if Mr. Trump imposed global tariffs. The 27-nation EU exported $576.3 billion in goods, or nearly 20% of total exports to the United States in 2023, with a trade surplus in goods of $208.6 billion, according to U.S. Census Bureau data.

Mr Trump warned during his election campaign that Europe would “pay a big price” for not buying enough US exports, including cars and agricultural products, while Americans buy “millions and millions” of European-made cars.

Recognizing the threats to struggling EU economies, including German and Italian carmakers, the European Commission is looking for ways to do business with Mr Trump, such as importing more US liquefied natural gas.