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Since United States (US) President Donald Trump took office on 20 January 2025, he has undoubtedly kicked up a lot of dust and sent markets into a tailspin. With the US mid-term elections coming up in 2026, in this edition of Peregrination we unpack Trump’s policies and look at why the clock may be ticking on his current red sweep – a Republican Presidency, Senate and House of Representatives.
Shortly after his election win, Trump announced the top priorities for his presidency – immigration, tariffs and fiscal stimulus. If we look back at Trump’s first 100 days in office, we see that he wasted no time. He executed an unprecedented number of executive orders, some of which have been implemented and others that are still being debated in the courts. In addition, Trump used that time to have conversations with an extraordinary number of world leaders. He met with Ukraine and Russia, and worked on trade deals with the United Kingdom (UK), China, and Vietnam.
However, the fallout from Trump’s policies is hitting his voter base hard.
An initial fear for a global recession
The true impact of his policies came through on 2 April, when Trump announced sweeping tariff hikes on all of the US’s trading partners. These hikes ranged from the 10% baseline tariff on all imported goods, to up to 50% tariffs for countries like Lesotho. Markets reacted as if the world had come to an end, and a global recession was predicted on the back of this decision. While the Trump administration implemented a 90-day pause on tariff increases to support trade negotiations, this merely postponed what now appears to be the next chapter of uncertainty.
Cutting Federal Jobs
Another blow for Trump was that while his plan for greater government efficiency did not achieve the promised savings, it did see federal employment reduced. However, a number of the job cuts impacted his voter base, which is a huge negative for Trump.
Joining the war
Trump has further alienated voters by getting involved in the Israel-Iran skirmish. In his campaign, he stressed that he, and the US, were done fighting other people’s wars. While it was short-lived, there was a lot of pushback when the US bombed Iran’s nuclear facilities, with many saying that he should have consulted Congress on the move.
The Big Beautiful Bill
Adding to the loss of faith in Trump’s presidency is the One Big Beautiful Bill Act that covers Trump’s tax proposals. This controversial bill has sparked debate over the US’s deficit, the (negative) reform of social programmes, and increased federal spending levels. The bill proposes large tax cuts, while adding $3.3 trillion to the federal deficit over the next 10 years.
This bill was the trigger for the massive public spat between Trump and Elon Musk. The funding for this bill was meant to come from savings Musk had promised through his Department of Government Efficiency (DOGE) efforts. However, by the time Musk left the White House, he had only managed $160 billion in savings, nowhere near the $2 trillion promised. Musk argues that the US cannot afford Trump’s bill, because it is giving tax breaks while increasing spending, and he is questioning where the money will come from.
As an aside, many believe that Musk’s outrage is less about the cost of the bill and more about the fact that it will see the scrapping of the $7,500 subsidy for buyers of electric vehicles, which will have a direct impact on the Tesla business model.
The vulnerable penalised
The Institute on Taxation and Economic Policy examined the impact Trump’s proposed tax laws will have on various income groups. Despite arguments that new laws will boost take-home pay, the Institute found that the top 5% of US earners will benefit from the new tax laws, while all other earners will end up paying more – with the two lowest income brackets being the most effected – as the Bill will see many of these people lose access to Medicaid and food aid. With the bill appearing to only benefit the ultra-wealthy, this may not go down well with his lower-income voter base.
The reaction to trump’s first 100 days The reaction to Trumps first,
s we settle into Trump’s second term, we may start seeing some resistance to his policies. In November 2026, halfway through his presidency, Trump faces the US midterm elections. With his policies impacting the US economy, jobs and taxes, he may find his capacity to introduce wide-ranging changes severely curtailed.
As such, following his first 100 days in office, we are seeing Trump allowing the dust to settle. He appears to be taking a more measured approach on some of his initial reform proposals. I believe this could be because he is realising that his political capital is under pressure and his “red sweep” could be under threat. Trump is also seeing his own party members turn against him, with the passing of the Big Beautiful Bill only being ratified because of the swing vote of Vice President JD Vance.
In addition, Trump is also seeing pushback from his policies on the ground: In addition Trump is also seeing puchback from his policies
Trump’s immigration policies have seen widespread protests in Los Angeles, a sanctuary city (where municipalities do not cooperate with federal immigration enforcement), with protestors taking and sharing pictures of immigrants being arrested.
His tariff policies have seen the markets question whether the dollar can remain a safe-haven currency, especially given the increase in government debt in an economy running on enormous deficits, which will be compounded by the proposed tax cuts.
Moody’s downgraded US government bonds from the highest rating to one below. While this is not significant, it does send an extremely important message around the sustainability of US debt levels.
Markets go from overreactinv to underreacting
Trump’s first 100 days saw massive reactions from markets which created unprecedented volatility across all asset classes. The 2 April tariff announcement saw huge equity sell-offs on Wall Street, which experienced its worst day since the 2020 COVID-19 pandemic.
However, the deeper into Trump’s presidency we go, the more markets appear to be becoming circumspect around Trump’s unpredictable leadership style. They are realising that Trump himself is volatile, and what he says in the morning is not what happens in the evening. Now markets are starting to look at the longer-term implications of his policies and are asking, “Where is the world going to be after Trump?”
In addition, following the 2 April tariff announcement, the consensus expectation was that these policies will drive the US and the world into a recession. On the day, nobody anticipated a pause in the implementation of the tariffs or that some more favourable trade agreements would be struck during the 90-day hiatus. Given these latest developments, the International Monetary Fund (IMF), the World Bank and the Organization of Economic Cooperation and Development (OECD) have brightened their outlooks. So, while a recession was expected in April, they are now predicting that the global economy will continue to slow but is unlikely to enter an economic recession.
If we look at the OECD and the changes to its growth assumptions, the largest adjustment was made to US growth. From March to June this year, the OECD cut US growth projections by roughly 80 basis points. This highlights that the US will be hurt the most by Trump’s policies and will be the most impacted by inflationary pressure caused by tariffs – again reiterating why the clock is ticking on Trump’s term. Trump’s policies have also put the US Federal Reserve (Fed) in a very difficult position. Even if the US central bank would like to cut rates due to a slowing economy, it is reticent to do so given the stickiness of US inflation. We expect this to continue for the next 12 to 18 months.
At Peregrine Wealth, we agree that the world economy will slow to below capacity growth, while countries adjust towards the tariffs and find new trading partners, driving the global economy back to a new equilibrium and capacity growth over the next three to five years. We must also remember that Trump and the US still want to trade, and, as such, Trump is still working on trade agreements with major trading partners, like the European Union (EU) and Japan.
EU Confidence boosted by defence spending
On the other side of the Atlantic, business confidence in the UK and EU has increased significantly – despite economic growth remaining weak – on the back of the announcement of the once-in-decades fiscal spend. We believe this boost in confidence is unlikely to be sustained. This is primarily because the increased fiscal spending is directed toward defence rather than productive infrastructure such as roads and bridges. As a result, the stimulus is less likely to generate long-term economic benefits or be recycled effectively through the broader economy.
The increase in fiscal spend, specifically in Germany, comes as the EU calls for defence spending to be increased to 5% of GDP. This spending is not to enter a war, but rather for EU countries to have the ability to protect themselves, especially given that the US support of its allies is diminishing. The magnitude of this spend is designed to match the trend of increased military spend by countries like Russia and China over the last decade.
The announcement of this defence spending has coincided with Trump’s return to the Oval Office. It has resulted in a massive increase in the share prices of defence sector stocks, especially in the EU, which has supported EU equity markets year to date. The recent outperformance of EU markets, however, should not be seen as the beginning of the end of US exceptionalism given that it boils down to very specific sectors and companies. From a fundamentally economic perspective the US still remains well ahead of Europe.
When trying to predict the future of the EU economy, we need to understand that the EU finds itself in an interesting position. While the US has positive population growth, through legal immigration, the EU countries are struggling with aging populations, along with low productivity levels. So the promise of increased fiscal spending that is boosting business confidence in the region, is not going to get them out of low economic growth given structural issues like demographics and labour productivity. Therefore, EU growth should pick up towards capacity but will remain below 1.5% over the next few years.
World economy a little brighter in second half
Now in the second half of the year, there are encouraging signs of progress compared to the more subdued outlook in April. While we have readjusted our global growth outlook for the next 12 to 18 months to below capacity growth – with the biggest adjustments being made to the US growth outlook, as it will take the brunt of the impact of Trump’s policies – given how dynamic the global economy and companies are, we do see the global economy normalising and finding a new equilibrium over the next three to five years.
On the positive side, the threat of a global recession is fading, and the global economy will get back to capacity growth of around 2.5%. We believe that is more than enough for the world to muddle along and for companies to make reasonable profit, especially those that are well-positioned to navigate the current volatility and uncertainty.
What is important to note, at this juncture, is that the US’s contribution to global growth will reduce over the next few years, and that emerging Asia will pick up a lot of the slack from reduced US trade. As such, the makeup of the global economy will change going forward, where the US is going to make a smaller contribution to global growth.
Wrapping up
The global environment is currently marked by significant challenges and heightened uncertainty. As risk managers, our role is to actively navigate these conditions, safeguarding your wealth through prudent risk management while also identifying opportunities to grow it. Amidst the ongoing volatility, our focus remains on protecting the long-term security of your hard-earned wealth.