It's Been a Busy Couple of Weeks, and Trump 2.0 Is Just Getting Started

True to form, President Trump has been all over the political and economic news since taking office (although he was briefly pushed out of the spotlight on Monday by Chinese company DeepSeek’s advances in AI). The returning president kicked off his second term with a flurry of executive orders, proclamations and memoranda setting out the basis of the new administration's public policies. These executive actions cover a wide range of issues and break sharply with President Biden’s policies. So far, the executive actions on trade policy, immigration, energy and the federal civil service will have the biggest short-term impact on the economy.

On the morning of Trump’s inauguration as 47th president, the most pressing questions were whether he would announce a clearly protectionist trade policy that very day and whether higher tariffs would be imposed imminently. But rather than resolving those questions, the president issued a memorandum laying the foundations for his America First Trade Policy without providing any specifics on his promised tariffs. Instead, it set out a long list of what the new administration sees as problems with international trade. These ranged from general matters like the US’s persistent trade deficit to highly specific issues like multiple US complaints about China's trade practices. Canada and Mexico were both mentioned. The memorandum covered everything from the US’s large trade deficit with its neighbors, the USMCA review process and national security concerns that could lead to changes in exemptions on steel and aluminum tariffs, to a desire to address the fentanyl and migration crises. It didn’t announce any immediate measures, but it laid the groundwork for what’s to come. The president ordered various US agencies to study each of these issues by April 1 and recommend solutions, while explicitly stating that these could include tariffs.

And yet, Trump being who he is, government employees may not get much time to prepare their recommendations. On the evening of January 20, the president floated the idea of imposing 25% tariffs on Canada and Mexico as early as February 1. Since then, both he and his press secretary have repeated the threat. Based solely on what has been signed and published by the White House so far, such a rapid implementation of tariff hikes would be surprising. But we can’t completely rule it out. (At the time of publication, there was breaking news that tariffs would be announced shortly and take effect March 1.) If the president really wants to move ahead quickly, he can invoke the International Emergency Economic Powers Act (IEEPA). On August 15, 1971, President Richard Nixon used a similar statute to raise tariffs on imports to the US by 10%. It remains to be seen whether Trump will use this power and, if so, exactly what he’ll do with it. His abandoned threat of 25% (and potentially 50%) tariffs on imports from Colombia (in retaliation for Colombian president Gustavo Petro's refusal to accept US deportation flights), pressure placed on Denmark regarding Greenland, and other threats toward China and Russia are a reminder of the US president’s volatile and unpredictable nature. But they also suggest that there’s a difference between what Trump posts on social media and what actually gets officially signed and implemented. The coming days, or even hours, will tell us more.

The president also wanted to really focus attention on the issue of immigration. We’re not talking a memo calling for reviews, but actual executive actions with real and immediate impact, including the declaration of a state of emergency on the Mexican border. But what kind of repercussions will these actions have on economic activity? In this case, we need to separate showmanship, and even human tragedy, from economic repercussions. Remember that the US never stopped deporting people. According to data from the Department of Homeland Security External link., more than 675,000 people were deported (total repatriations) in the first 11 months of 2024. Deportations may have accelerated since the president increased the powers of the agencies in charge. The first detentions and deportations under the new regime will be easier and have little impact on the economy. But if, as the Republican administration hopes, they ramp up significantly, the repercussions will be more strongly felt. Right now, stories of undocumented migrants skipping work are mostly just that: stories. But a significant disruption of this workforce will nevertheless curtail US economic activity, especially in the agricultural, construction, manufacturing and service sectors. This may very well put upward pressure on inflation, especially if Trump’s tariff threats come to pass.

Ironically, US voter frustration with rising prices was one of the main reasons Donald Trump prevailed over Kamala Harris. On January 20, Trump issued a memorandum on defeating the cost of living crisis. It’s a worthwhile goal, but the memo doesn’t map out a clear path to achieving it. This policy relies mainly on deregulation, with the new administration focusing primarily on lowering the cost of energy, especially oil and gas. Executive orders that were also signed on January 20 aim to “free American energy” and declared a national energy emergency. The president is counting on heavily deregulating the oil and gas industry, particularly by eliminating a wide swathe of environmental restrictions, simplifying and fast-tracking the permitting process, and reopening some federal land to energy drilling. But we question whether energy prices will fall enough to bring all the benefits the president is hoping for, such as the interest rate cuts he demanded during his speech at Davos. US oil companies are eager to maintain high profits and will therefore plan production and investments based on market conditions. Excessively low prices are likely to scare them off.

Finally, the White House made a number of announcements regarding public spending and the civil service. He froze spending and investments under the 2022 Inflation Reduction Act and the 2021 Bipartisan Infrastructure Law, both signed by Biden. The new administration’s priority is halting all measures that go against its own views, especially regarding the environment. At first the freeze was wide-ranging, but subsequent directives clarified and narrowed its reach. He also issued an order pausing all federal aid, but the administration has already had to walk that back. He also established a Department of Government Efficiency (DOGE) under Elon Musk. But it’s really just a rebrand of the United States Digital Service, and its mandate will be more limited than initially promised. Its purpose is to modernize the technology and software used by the federal government, which is a far cry from restructuring the government apparatus or slashing up to US$2 trillion in spending. That said, federal civil servants still face real uncertainty. The new administration even rolled out an incentive plan encouraging them to resign now (but get paid till September 30).

Although his promises to extend the 2018 tax cuts and introduce new tax breaks were central to his campaign, Trump hasn’t said much about them during the first two weeks of his term. We get the impression that, as in 2017, he’ll let congressional Republicans take the lead in making a proposal, or even a budget, that reflects his campaign platform.

All things considered, Donald Trump has been president for less than two weeks, and the new administration has pumped out an enormous number of memos and orders for such a brief stretch of time. But we still don’t know much about how all of this will affect the economy. Although we are concerned about the economic fallout of the decisions that the new president will make, it will still be good to get some clarity. This will help us differentiate between Trump’s informal comments on social media and the actions officially taken by the US government.