Donald Trump is serious: the USA wants to levy additional tariffs of 25% on the price of every imported car. “They will go into effect April 2, we start collecting April 3,” the US president said when signing the relevant order. At the same time he repeated the accusation that the United States was being ripped off, the piggy bank that other countries were stealing from. “It’s the start of liberation day in America”, Trump enthused. Not only are the new charges intended to flush billions into government coffers and thereby help to reduce taxes and pay off debt, but the Republican is also predicting a rosy future for US industry. “This is very exciting, this is going to lead to the construction of a lot of auto plants, and you are going to see numbers like you haven’t seen in terms of employment,” Trump continued. Such announcements run like a red thread through the first ten weeks since the return of the 78-year-old to the White House.
Nevertheless, a certain wariness towards the new government is spreading on Wall Street. Trump’s victory in the elections at the start of November had initially been literally celebrated, with investors confident that the president would boost the world’s largest economy through deregulation and tax cuts in line with his “America First!” slogan. The “Trump put”, a term reflecting the options business, became a common expression in this context, suggesting that the new administration’s actions could virtually remove the downside risks from the market. The mood began turning soon after Trump was sworn in on 20 January, however. The S&P 500 Index was unable to maintain the all-time high reached in mid-February, instead shedding a tenth of its value within just under three weeks. The NASDAQ-100, which is made up of US technology stocks, suffered an even greater correction from the top, dropping nearly 14%.
Now it is not only the much-cited “Trump put” that is being called into question on Wall Street: there are also growing doubts about the prominent position that the US economy has occupied in the last few years. According to figures from the International Monetary Fund, for the last decade the economic output of the United States has risen by an average of 2.5% a year. That puts the USA well ahead of the other G7 states (see graph). At the same time, Wall Street was the measure of all things in terms of stock market activity. This could now be over. “American exceptionalism is probably dead,” writes Bloomberg author Edward Harrison. He is explicitly is not referring to the entrepreneurial model that has fuelled Silicon Valley and spawned the tech giants. “No, I’m talking about that model’s ability to consistently deliver higher earnings growth to fuel US market outperformance,” Harrison writes.
The finance expert presents three arguments for his highly thought-provoking thesis. He sees the Department of Government Efficiency (DOGE) as one possible burden on the US economy. The Elon Musk-led authority is carrying out a kind of eradication programme by shutting down agencies, cutting jobs and cancelling contracts. These actions could lead to a sharp decline in government spending. The public sector had given the economy a significant boost in recent years, with spending totalling almost USDtn 7 in 2024 alone (see graph). The second point the author mentions is inflation. Although the rate of increase has fallen back somewhat since the price shock triggered by the pandemic, at 2.8% the U.S. Consumer Price Index (CPI) still expanded much more strongly than the Federal Reserve had hoped in February. It aims for an inflation rate of 2%. The government’s tariff policy could see prices continue to rise. With that in mind, the Fed is already adopting a wait-and-see attitude – there were no further cut in interest rates in the first two months of the year.
Edward Harrison sees a third challenge on the supply side, referring here to an analysis by J.P. Morgan. According to the big bank, the productivity of the US economy improved significantly in the last two years. Now, however, demand is weakening, not least because of declining immigration. As a result, the growth in supply is already slowing down, potentially threatening the USA’s lead over Europe. Supply on the old continent is growing, while demand is also picking up. The change of favourites on the stock market is in keeping with this: the S&P 500 Index has just ended a quarter with price losses. Meanwhile, the STOXX Europe 600 Index has risen around 7% in value. Seen over the long term, the USA still has a big lead here, but should the Trump put actually be running out of steam, Wall Street could be in for a bumpy ride.
Source: IMF; as at: March 2025. Past performance is not a reliable indicator of future performance.
Source: Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; as at: March 2025. Past performance is not a reliable indicator of future performance.