Here are the 5 biggest global economic challenges for 2025 – DW – 27/12/2024

1. Donald Trump 2.0 starts in January

Unpredictability is likely to be the guideline for 2025 and beyond. And almost all of it will be in the hands of one man: Donald Trump, the president-elect of the world’s largest economy.

His so-called America First approach will reach far beyond the country’s borders. Trump’s whims will reshape the global order as we know it.

Prosperity, globalization and distant wars will largely be decided in Washington, DC. This is nothing new. What is new is the uncertainty of it all and the level of chaos that can surround such decisions.

Trump has questioned international cooperation and denigrated allies and NATO. New trade alliances and an inward-looking America may have unintended consequences. A lack of clear US leadership will provide openings for countries such as China, India and Russia to fill military, political and economic gaps.

2. Tariffs, trade wars and higher prices

Businesses like to plan ahead, which is why the threat of tariffs is so unsettling. Trump praises the idea as a way to punish countries for trade deficits. “The word tariff is the most beautiful word in the dictionary,” he said in October.

During the 2024 election campaign, Trump threatened tariffs of 10-20% on all goods entering the US and up to 60% on Chinese goods from his first day in office.

Recently, he fine-tuned it to a 25% tariff on all goods from Mexico and Canada. Chinese goods would only be hit by a 10% tariff. Mexico promised counter-tariffs. China could do the same. Canadian Prime Minister Justin Trudeau visited Trump in Florida to try to avoid it all.

For companies with a global supply chain, escalating tariffs would be bad news. Those duties would hurt America’s neighbors and likely break the United States-Mexico-Canada Agreement (USMCA), a free trade deal struck during Trump’s first term.

Currently, about 80% of Mexico’s and over 75% of Canada’s exports go to the United States. More than half of the United States’ imports of fruits and vegetables come from Mexico. The US imports lumber and millions of barrels of crude oil from Canada daily.

Ultimately, American shoppers will be hit with higher prices and may encounter empty shelves. Some argue that Trump is using the threat of tariffs as a bargaining tool, but such a bluff could lead to retaliation and quickly escalate into a global trade war.

3. Immigration under fire around the world

It’s not just goods that could face walls. Global migration will increasingly be met with literal walls. Leaders around the world feel the need to show they are in control of their borders by being tougher on immigrants. This will make the world less open and dynamic.

During the US election campaign, Republicans promised to “conduct the largest deportation operation in American history” in their 2024 GOP platform. It’s an idea Trump has latched on to.

In addition to deportations and tougher action along the border with Mexico, he promised in an interview in early December to end automatic citizenship for anyone born in the United States.

The US president has a lot of authority when it comes to illegal immigration, but most of his proposals end up in court. He also has the power to chew up legal immigration by limiting the number of refugees or making it harder to get visas or green cards.

Keeping immigrants out – or sending them home – would have a knock-on effect on the country’s labor market. Crops can be left to rot and entrepreneurs can set up in other countries.

A tighter Mexican border will affect people from Latin America, especially countries like Cuba, Haiti and Venezuela.

The US is not alone in buzzing about immigration. The European Union has promised to crack down on irregular migration. Italy is trying to process refugees in Albania, and immigration will be a big issue in Germany’s upcoming elections.

4. Wars in Ukraine, the Middle East and beyond

As we enter 2025, the world is experiencing more armed conflicts. These wars have caused destruction and humanitarian disasters. They also cost money that could be spent in more productive ways.

Trump claims he will end Russia’s war in Ukraine within 24 hours. He could withhold US funding that has kept the country afloat in the three years since it was invaded. Since America is its biggest backer, this could push Ukraine to the negotiating table.

Israel’s war against Hamas, played out in Gaza and more recently in Lebanon, is also ongoing and may expand in the future. In Asia, China continues to lay claim to Taiwan, which fears an imminent invasion.

For decades, American leadership has helped balance global scales. But Trump has called that into question. If America will not help defend allies, then decades of policy will go up in smoke. Such a new world order may encourage Iran or North Korea to test the limits of their own military actions.

5. Will there finally be an AI boom?

The introduction of OpenAI’s ChatGPT in late November 2022 was the starting point for the wider use of artificial intelligence (AI). Within weeks it had 100 million users.

Yet AI has been slow to change the lives of ordinary workers and businesses. However, using technology to create medicine or aid in military defense is a tall order. Companies need to create policies for how and when to use AI – and encourage employees to use it.

To keep up, AI providers are investing heavily in large data centers. To keep these centers running and cool requires huge amounts of electricity. Microsoft is behind plans to restart a nuclear power plant in Pennsylvania, and Google is betting on small nuclear reactors to power its data centers.

Will 2025 be the year when AI finally becomes the game-changer its proponents have promised? Investors, creators and users will have to wait and see if all that electricity is worth it, or they can just ask ChatGPT.

Edited by: Uwe Hessler