What To Expect from Trumponomics

President-elect Donald Trump won the election through effective communication, which many call “pure rhetoric.” In fact, Trump has taken advantage of having clear ideas on some well-defined issues. Reporting a few things is easier than describing large electoral programs to address many problems in detail. This does not mean that it is “better” to have few but clear ideas, since the objective global complexity of many problems makes the idea that they can be solved with just a few measures illusory. But the ability to communicate some ideas effectively is extremely important in all fields. What are the main points of Donald Trump’s program? I consider four: armed war (Ukraine), economic war (tariffs), natural capital (sustainability), and cryptocurrencies (bitcoin).

Armed war: this is the best example of rhetoric, as the future president said he would solve the problem of war between Ukraine and Russia “in a few days” (consistently, two years ago he claimed that if he were president, the war would never have started). It is also an example of how rhetoric turns into narrative, and narrative sometimes produces results, as a recent essay by Nobel Prize winner Robert Shiller on “narrative economics” emphasizes. Even President Zelensky recently predicted that “the war will end in 2025,” hopefully with a “just peace.” But it seems really hard to understand how the war could end in a few months in the way described, with Russia stepping up operations on the ground and changing its “nuclear doctrine,” while the USA and some European countries allow Ukraine to use weapons on Russian territory. Of course, peace can pay a significant economic dividend, although in the short term it will be less than some had hoped, given the reduction in aggregate demand for military spending. In the long run, peace will bring great benefits to all, not so much in terms of demand, but in terms of allocating resources that will be used to promote research and development rather than to produce weapons that destroy lives (and further reduce productive capital), as well as pollute the environment and risk setting some major economies back decades. The world dividend will be very high for the European countries, most sensitive to energy costs, primarily Germany and Italy.

Economic war: protectionism is a typical temptation of all regimes that seek simple shortcuts to the goal of economic growth and believe that other countries can persuade consumers to buy their goods and services by favoring local companies and therefore engaging in commercially unfair practices. Given the jungle of rules and the multitude of bilateral and multilateral agreements in international trade, it is now difficult to say with certainty which country is the most protectionist. What is certain is that a tariff war could have a significant impact on Europe, again, particularly Germany and Italy. At this point, we are still in the declaration stage, and it is impossible to justify the scenarios. A wave of further protectionism would disrupt global supply chains and would certainly be inflationary, as well as affect monetary policy and interest rates.

Natural capital: the relationship between Trump and natural capital (meaning all living things and resources) has never been very intense. The future president seems to be closer to a “cowboy economy” (the linear economy described in Sergio Leone’s movies where no one cares about respecting the environment, with infinite supply versus demand) than to a “spaceship economy” (the closed-loop economy described as a way of life by movies such as “2001: A Space Odyssey” or “The Martian, where every gram of resources is necessary for survival). This is probably the element that could have the greatest impact on the global economy, which even without Trump seems unable to coordinate to solve the perennial problem of the “tragedy of the commons” illustrated for decades by environmental economics, particularly as it relates to climate change (recall also that according to a Yale University poll, nearly 30% of Americans do not believe that climate change caused by our lifestyles really exists). Paris’s goal of preventing average temperatures from rising by more than 1.5 degrees Celsius above pre-industrial levels is a goal that, according to 2024 data, has already failed. This may mean that in the coming years we will have to accept our inability to prevent temperature rise but adapt to climate change, a scenario that may require spending a huge amount of resources on infrastructure investment (just think of our rail and highway network and its sensitivity to climate extremes and sea level rise).

Cryptocurrencies: in the economic sphere, it is worth remembering what Trump has NOT stated, namely the interference in the monopoly of big tech companies, in particular the “magnificent seven,” which has been driving the strong growth of the US stock market for months, in the hope that artificial intelligence can improve the productivity of the economy. This shows that Trump does not have a liberal agenda, typical of the best Republican administrations, but a protectionist agenda, well described by the desire to “make America great again.” However, Trump criticizes another monopoly: the monopoly of money. The future president is an ardent supporter of cryptocurrencies, which in the writings of liberal economists represent the modern equivalent of an attempt to liberalize the money supply by attracting private business. It remains unclear what impact recognizing the legal value of bitcoin (and other cryptocurrencies) might have on the economic equilibrium. Could it be equivalent to the historically proven, though not particularly important from a quantitative point of view, systems of bimetallism and parallel coin circulation? We are in unknown territory, and the best guide is an important essay by the 1974 Nobel Prize-winning economist Hayek, who in 1978 published an expanded version of his thoughts on the “denationalization of money.” This structural change, if implemented, could be Donald Trump’s greatest legacy, albeit with still unpredictable practical consequences.

Conclusions: Donald Trump’s second election could have important implications for the American and global economy. We should not be against these future possibilities a priori, as change is a constant in our lives, and we should manage and direct it, not tolerate it. This scenario represents a major risk for a Europe, centered on political balance between parties that have few original ideas and often confuse short-term vision and ideology with pragmatism on all sides. At this moment, more than ever, Europe must decide what to do about its future. The United States resolved the war in 1945 and pledged to invest resources in rebuilding the devastated continent. The time has come to grow up, to note that we border major eastern countries and that we may have great difficulty, including demographic trends, in maintaining our way of life in the coming decades.