The year 2024 was complicated. However, with two wars underway, the one in Ukraine and the Israeli one with Palestine, the markets have remained calm, without practically damaging the progress of the economy. Russia’s front is being exhausted, without making significant advances in Ukraine and without recovering the lost territory in Kursk, some 700 km2. The fall of Syria is also proof of the serious weakness of Vladimir Putinwhich loses its ability to influence not only in the Middle East, but throughout the Mediterranean and even partially in Africa.
In parallel, the war in Israel also seems close to a solution, after the Hebrew Army consolidated its positions on Hezbollah/Iran in Lebanon and on Hamas in Gaza. Another good news is that for the first time in a long time, oil is not being used as a weapon of pressure by the Arab world against the West.
With the arrival of trump Anything is possible, but the possibility of reaching peace agreements in both conflicts opens up, which would give an additional boost to the global economy. But don’t get excited, not everything will be seamless in 2025. On January 20, Trump will take office as president of the United States and from there we will see what promises he is willing to carry out and their economic effect. The president-elect has basically promised three types of measures, all of them inflationary: kicking immigrants out of his country, raising tariffs and lowering taxes.
The first is impossible because expelling 11 million immigrants would require time. The courts will delay the processes. However, the other two are perfectly doable. The president has power over trade policy and it seems difficult for the Congress and Senate to block a measure as popular as lowering taxes, especially with both Houses under his control.
Let us keep in mind that the US is the least open economy to the outside world among the great Western powers, with a trade deficit of 3% of its GDP, mainly with China (252,144 million), Mexico (162,104 million) and Europe (125,126 million). The three who are in Trump’s target.
The president-elect promised a universal tax of between 10% and 20% on all imports, regardless of their origin. The tariff threat is palpable. Proof of this is that American companies are accelerating imports and freight volumes, particularly those from China, which wants to impose a 60% rate on all products. With respect to Europe, there is a risk that it will decide to break the agreement reached in 2021 between Washington and Brussels that suspended compensatory taxes in the Airbus-Boeing dispute for five years.
Let us remember that in 2019, the Trump Administration imposed a 25% compensatory tariff on a wide range of European food products, as a result of the Airbus-Boeing dispute. In Spain, the list included olive oil, wine, olives, cheeses, clementines and even mussels. The impact was immediate and caused national exports of these products to fall by 27% in two years, according to the ICEX.
Now olive oil and wine are once again in the eye of the hurricane, which are almost a third of food exports to the US. To this list, we must add meat products or aeronautical components.
The greatest danger is in an open trade war with China. The Administration Biden says goodbye by ordering an investigation into the Chinese semiconductor industry, which intensifies trade tensions with Beijing just weeks before Trump takes office.
China expressed its “firm opposition” to the measure on Monday and announced in retaliation restrictions on the export of gallium, germanium, antimony and other rare or super-hard materials. The yellow giant is the largest producer of antimony, used in the weapons industry and in the manufacture of batteries, semiconductors and solar panels. 48% of world production and 63% of US imports of antimony come from Beijing, which also meets 52% of European antimony consumption. Antimony prices have doubled in the last three months.
Likewise, China supplies 54% of the germanium used by Washington in infrared and fiber optic technology and 26% of gallium. If Trump fulfills his promise to toughen tariff rates, the global supply chain, especially for raw materials, will suffer serious tensions, as already happened during the pandemic.
The trade conflict would be a death blow to the Chinese economy, the second largest on the planet, which is currently drowning in debt, reeling from a real estate crisis that eliminated trillions of dollars of family wealth and on the brink of deflation. Its growth has slowed, investment has plummeted and consumer confidence is at historic lows. Its decline would drag the rest in and out of the Asian continent.
Trump’s three promises generate inflation and a clash with China would affect world trade
The other great threat in 2025 is inflation. With the American economy in an expansionary cycle and without unemployment, it is most likely that the Federal Reserve will lower rates less than expected, as already happened in 2024, when it did not apply its first cut until September 18. Especially if Trump reduces taxes and raises tariffs, as he has promised.
On the other hand, the ECB may be forced to reduce the price of money aggressively to try to revive anemic or non-existent growth. It would be a more political than technical decision because its mandate is limited to stabilizing inflation. But it will somehow need to apply shock therapy, given the collapse of the governments of France and Germany, the two largest economies, which leaves the EU without political leadership.
Germany has disappeared, as we knew it. It has not grown for six quarters and is likely to continue like this in 2025. While France It suffers serious governance problems (three prime ministers in two years) and management, with a fiscal deficit close to 7% and a debt to GDP of 110% and no signs of slowing down. To make matters worse, if Trump cuts aid to the war in Ukraine or leaves NATO, the Europeans will have to bear their proportional share of defense costs, which will further strain their battered accounts.
Europe will suffer, the rise of the ‘pigs’ does not compensate for the fall of the colossi of Germany and France
Spain, Portugal or Irelandthe former pigs, are now the three European tigers, but their growth is insufficient to compensate for the fall of the European colossi. In these circumstances, Europe will be, along with China, one of the scapegoats of Trump’s policies in 2025. Inflation and trade wars can take a costly toll on the global economy and cause markets to abandon the complacency in which they live and discover the harsh reality. Many analysts are already talking about a bubble, which will burst if financing does not decrease or even becomes more expensive and multinationals fail to meet their demanding profit forecasts. 2025 is full of uncertainties. Happy new year!
P.S..-And Spain, what? More of the same. Our economy is specialized in services, which is allowing us to escape European stagnation and, in addition, we have much cheaper energy. That is the great trick to becoming a prosperous country, if we know how to play it.
The data released this week by the INE show that we are increasingly dependent on tourism, which has risen more than one point in the last year, to represent more than 12.3% of GDP, and generate 2.5 million jobs. The problem is that it is a cheap and unstable job. 60% of the contracts are temporary or permanent, discontinuous, the formula used by Yolanda Díaz to cover up the strike.
The entry of more than a million immigrants is supplying cheap labor to the sector and contributes to plugging the hole in Social Security. The arrival of the European Next Generation funds until 2026 guarantees growth above the European average until that date. But no one is immune to international tensions.
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