The long-awaited moment has arrived, and Donald Trump will be sworn in as President of the United States for the second time. Over the past year, I have spent countless moments speculating, mostly in front of an audience, about who will win and what it will mean. For the USA, for the world at large, and also for Sweden. It is fitting that in this column, I get to air my thoughts on what has been and guess at what is to come.
Fortunately, even though many may not share that sentiment, there is a previous Trump administration to study, which may make the guesses more accurate.
But perhaps it is still hoping for too much, considering we are talking about Donald Trump – the personification of unpredictability. After three election campaigns with Trump on one side, I have come to the conclusion that he views the process in two parts.
The first part is about the policies he says he will implement during the campaign to get elected as president. The second part is the policies he actually implements after being elected. History has shown that the two parts do not always align, which in fact unites most politicians. This phenomenon is called “espoused theory vs theory in use.”
The difference between Trump and other politicians, however, is that as the leader of the world’s largest economy, he affects both geopolitics and the economy far beyond the borders of the USA.
The unpredictability leads to uncertainty, which can have both negative and positive effects.
The necessary rearmament that began in Europe during Trump’s first term, and which is likely to continue with greater force, is an example of a positive effect.
The uncertainty about where Trump stands in relation to NATO is now forcing European NATO members to do what should have been done a long time ago – take greater responsibility for their own defense.
Another characteristic of Trump is that he is a deal-maker.
Everything is negotiable. Any principles are flexible as long as Trump and/or the USA get the better deal. And as in all negotiations, it can pay off to start strong and then achieve what you actually expect to achieve.
I believe that much of what Trump has threatened or promised – whether it’s tariffs or military support – are chess pieces in a larger game where a concession in tariffs, for example, is acceptable if greater benefits are achieved in other areas or activities.
This opens the door to quick unconventional solutions that may not suit everyone. More unpredictability and uncertainty. Regardless of the above reasoning – which is my own thoughts – we have already felt the effects of the election results.
As I have discussed in a previous column, long-term interest rates have been rising in the USA as Trump’s approval ratings have increased.
The reason is that the intended economic policy from a (now confirmed as “the”) future Trump administration is expected to lead to higher inflation – and thus fewer rate cuts from the Fed – at the same time as budget deficits and US public debt increase over time.
The higher US rates led to Swedish long-term rates also turning upwards.
The combination of higher rates, aggressive geopolitics, and expectations of a continued strong US economy has also led to a stronger dollar. This, in turn, has weakened the Swedish krona, which is approaching record-low levels.
At some point, a weaker krona may also begin to affect the Riksbank’s interest rate decisions.
Stock markets have also reacted after the US election. US markets have generally performed much better than European (and Swedish) markets, and Swedish fund investors have followed suit; large flows are going into both tech funds, where the major US tech companies dominate, and pure US funds.
Thus, we have already felt the effects of the US election in interest rates, currencies, and stock markets.
What lies ahead is just as exciting.
Trump’s cabinet nominations have already raised some eyebrows to put it mildly. Whether these, for many unconventional, proposals are part of Trump’s negotiation plan with his Republican senators or are serious, we will find out soon.
The same goes for many question marks within energy and climate issues. During his previous term, Trump withdrew from the Paris Agreement the day after he took office (which the USA re-signed under Biden). The mantra “Drill, baby, drill!” has been a consistent theme in Trump’s campaign.
However, it is the price level of oil that determines how much oil and gas will be pumped in the USA. American oil and gas are generally much more expensive to extract than, for example, oil from the Middle East and other areas where it is more accessible.
Trump’s strange fondness for hydrocarbon-based energy also seems odd considering his very close relationship with Elon Musk (who perhaps embodies electrification in the automotive industry more than anyone else). The contradiction adds to Trump’s character traits.
Despite everything, perhaps it is within the geopolitical security situation that fear, uncertainty, or hopes are greatest.
On Trump’s chessboard stand various pieces such as support for Ukraine, NATO cooperation, the war in the Middle East, as well as Taiwan, Iran, and North Korea, to name a few.
How he believes he can move these pieces and how he believes they relate to each other lies in the future, but one should assume that the chess moves will be driven by what benefits him and/or the USA.
For some time now, the US has perceived China as the greatest threat to its vision of an American world order.
The uncertainty, unpredictability, and contradictory promises and threats from future American policy therefore raise the demands on our own operations and on the policies in the EU and Sweden. Take nothing for granted.
Olof Manner is a senior advisor at Swedbank and a macroeconomist.