America’s economy is thriving, but it can only handle so much boldness

What does US President Donald Trump really care about? Critics may answer that Mr Trump cares first and foremost about himself. A more generous response would be that Mr Trump cares about his reputation and that reputation is inexorably linked to being seen as a great success, both in business and in the presidency. And he really, really cares about wealth – both personal and national – and the US economy. Mr Trump’s personal wealth, the faux-gold in Trump hotels, the bling and the billionaire friends being entertained at luxury golf resorts are all part of his appeal to voters in a country founded on the “American Dream” – the idea that every citizen has the opportunity to succeed and become wealthy. Beyond the dream, the dilemma in economic matters is which levers a president, prime minister or a central bank should pull to enable enterprise, keep inflation low and increase personal wealth. It’s a dilemma because the levers Mr Trump has talked about may pull the US economy in opposite directions. His top priority, Mr Trump has said repeatedly, is to make ordinary Americans feel better about the economy and their personal circumstances. Prices going up significantly in the Biden years is one of the main reasons Democrats lost the presidential election. Price rises across the world have been a source of problems for sitting governments. Inflation leading to anti-incumbent, anti-government discontent was a prominent feature in political upheavals throughout 2024, stretching from Germany and France to the UK, the US, Canada and elsewhere. In his 2025 inaugural address, Mr Trump made holding down inflation a key promise: “I will direct all members of my cabinet to marshal the vast powers at their disposal to defeat what was record inflation and rapidly bring down costs and prices”. The primary economic tool the US Federal Reserve has for lowering inflation is to raise interest rates. But that has political consequences. It increases borrowing costs for consumers, house buyers and businesses. In his inauguration speech, Mr Trump repeated a campaign mantra: “We will drill, baby, drill.” That means exploiting further the vast fossil fuel resources of the US and it could – whatever the environmental cost – help keep inflation low. But other parts of the Trump agenda seem destined to go in the opposite direction. He promises new tariffs on imports. While that has caused concern in China, Canada, Mexico, Europe and elsewhere, and could disrupt trade worldwide, American consumers would be the ones who end up paying those tariffs on imports. Tariffs on Chinese motor cars (for example), may boost American automobile manufacturers but blanket tariffs on cheaper Chinese products, clothing and domestic goods would – economists argue – raise prices for US consumers. Budget stores in the US would find it difficult to replace low-tech imported goods made by cheap labour abroad with a more expensive American workforce. And that US workforce will be depleted if Mr Trump carries out his promise to deport millions of immigrants . Deportations are predicted to trigger labour shortages especially in construction, agriculture and service industries. When workers are scarce it drives up wages and therefore prices. But if implementing tariffs can be problematic, threatening tariffs – as Mr Trump has done with Colombia – has already proved a successful weapon. When Colombia refused to take flights to repatriate migrants being ejected from the US, the threat of tariffs on coffee and other Colombian exports forced the government there to back down in an important success for Mr Trump. Nevertheless, the economy will define Mr Trump’s presidency for millions of Americans. The 1994 bond market crash was the greatest economic and political shock for former US president Bill Clinton. His adviser James Carville joked that when he died he would be reincarnated as the bond market because “you can intimidate everybody”. In 2022, the British Prime Minister Liz Truss’s bold – or foolish, depending on your views – tax-cutting budget caused the pound to drop almost immediately. Ms Truss lasted just seven turbulent weeks in Downing Street. Mr Trump’s promises to dismantle the government bureaucracy, protect jobs and deport migrant workers have proved his political genius, but some American commentators have already begun speculating whether his energetic first few months in office may similarly scare Wall Street. Mr Trump has suggested 25 per cent tariffs on products from Canada and Mexico and an additional 10 per cent tariff on China. It’s not clear when or even if any or all of that will happen or, as with Colombia , be a successful negotiating tactic. In his first term Mr Trump promised to build a wall and make Mexico pay for it. That did not happen. Trump Mark Two, refreshed and reinvigorated, has also talked of buying Greenland, taking control of the Panama Canal, ending the war in Ukraine, shaking up Nato and aiding Israel. Given such bold promises, if you ask a confident Trump supporter what Mr Trump is afraid of, they will probably answer “nothing”. The real answer may be, as it was for Mr Clinton, the bond market, Wall Street and American consumers seeing significant inflation or interest rate rises. As the Clinton team said: “It’s the economy, stupid.” It always is.