Day 2, and Donald Trump is already reshaping the global economy

SINGAPORE – Can you remake the global economy in two days? US President Donald Trump will try. Or at least threatens to. And he will take no hostages, friend or foe.

His threat on Jan 21 to level taxes on foreign companies whose countries tax US firms extra is a prime example – likely aimed at Europe, which has targeted Google and other US tech companies with heavy digital services taxes.

Countries like Australia, with unilateral taxes against Big Tech firms, could be next.

The threat comes after Mr Trump signed an executive order to withdraw from the global minimum corporate tax deal.

Frankly, no one should be surprised. This multilateral deal, inked at the Paris-based Organisation for Economic Cooperation and Development in 2021, has been on life support after the US started dragging its feet, consumed by a growing inflation and jobs problem that seeped into election season in 2024.

It would not have materialised in the first place without that push by then US President Joe Biden. Mr Trump’s electoral victory, followed by his formal withdrawal from the OECD agreement on Jan 21, simply confirmed it was dead in the water. 

But this power move underscores three fundamental truths policymakers and businesses around the world may have lost sight of in recent years, as an America, unable to demonstrate global economic leadership, struggled to beat back Chinese overcapacity and rein in inflation.

First, the US remains a global superpower because it is economically strong, and it will focus on making itself – in the words of Mr Trump – safer, stronger and more prosperous. So try not to get in its way.

Second, whatever America does will affect the world and here, friendships matter less than a cold-hearted calculation of where US interests lie. To be counted as a good friend to the US, countries must offer something.

Third, while many regarded Mr Trump’s first term as an aberration, his overwhelming electoral victory shows unequivocally that he is actually the new normal. And he will do things very differently, with the effects reshaping incentives for where businesses might make new investments.

In Mr Trump’s new global tax order, for example, Singapore’s plans to lower corporate tax rates from 17 per cent to land at the 15 per cent Mr Trump is looking at might be a plus. We may be seen less as an unfriendly tax haven enticing foreign firms with unfairly constructed tax incentives and more as a friendly nation that treats US firms well.

What to make of this? Pay close attention to what’s happening in the US because the chaos can throw up new opportunities.

The pro-business shift

How will Mr Trump reshape the US economy and the global economic order?

He will begin by rewriting the relationship between the US government and business, moving away from the adversarial tug-of-war espoused by the Democrats and towards a mutually beneficial one where he, in fact, still holds all the cards, including the prospect of further corporate tax cuts and deregulation.

The private sector knows this and is already falling in line. Just look at his inauguration ceremony, where icons of Big Tech from Amazon executive chairman Jeff Bezos to Meta founder Mark Zuckerberg and Google chief executive Sundar Pichai flanked his swearing-in and over US$170 million (S$230 million) was raised by major businesses and wealthy individuals. This is a list that includes General Motors, Boeing, Delta Air Lines, Robinhood and Toyota.

And Mr Trump will continue raising the ante. Day two of his presidency saw a groundbreaking announcement of a joint venture into artificial intelligence infrastructure and data centres by OpenAI, Oracle and Softbank, with an investment potentially rising to US$500 billion.

Barely a month ago, Softbank CEO Masayoshi Son had committed US$100 billion in investments at a press conference with Mr Trump and laughed uncomfortably at the then US President-elect’s suggestion that he doubled that figure. The same dynamic played out on Jan 21 as Mr Trump half-jokingly said Mr Son’s previously committed investment was separate from this AI deal.

Through bluster, bullying and brilliance, Mr Trump is his own industrial policy, attracting business investments and creating fresh opportunities. One might be tempted to chalk this up to his vast experience and killer instincts as a business mogul. 

Yet undeniable too is the strength of the US economy, for which credit to Mr Biden is owed – projected at a 2.7 per cent growth for 2025 by the International Monetary Fund, up from an estimate of 2.2 per cent. Who wouldn’t want to hitch sails to that wind?

But there’s a catch. Mr Trump will squeeze where he knows it hurts in incentivising countries to play nice and share the benefits of trade: He will threaten to tighten access to the US market through the use of tariffs like his opening salvo on Jan 21 of a 10 per cent tariff on Chinese imports and 25 per cent on Mexico and Canada from Feb 1.

The winning sectors

Where would Mr Trump focus on? My money is on high-tech sectors, where the US is expecting to compete with China for dominance. 

AI, crypto and cyber security will see a boost, especially with the appointment of an AI and crypto White House czar David Sacks, a former PayPal executive. Mr Howard Lutnick and Mr Scott Besent, Mr Trump’s picks for Secretary of Commerce and Treasury Secretary respectively, have also espoused favourable views on cryptocurrency.

Personnel is policy, as they say, but there are glaring strategic imperatives for Mr Trump to prioritise AI development and remove regulatory constraints to unlock innovation.

With China holding over 38,000 AI patents compared with the US’ 6,300, the US must race to close the gap. 

This is where the business opportunities and money will be. In contrast, across the Atlantic at the World Economic Forum (WEF) in Davos, a global green transition elite is lamenting a US$800 billion climate financing gap. 

Those climate action prospects could be further dampened by Mr Trump’s policy shift to “drill, baby, drill”, driven both by the strategic benefits of leveraging the US shale revolution as a new engine of growth and a political desire to lower costs of living for Americans. 

The climate change deck has been reshuffled. Oil and gas companies have been given a new lease of life. Meanwhile, subsidies and incentives for wind farms and electric vehicles have been rescinded by Mr Trump in executive orders signed on Jan 20, in addition to a withdrawal from the Paris climate agreement.

A key question then for countries that have made pledges towards a green transition timeline and investments to accelerate adaptation to climate change is whether the maths still make sense in this changed Trumpian world.

Early answers might lie in how banks, financial institutions and markets react, as incentives are shaped. The strategy might not be a hard U-turn, but a gradual adjustment of the sails as the wind direction changes.

The big shift

In a way, Mr Trump’s approach heralds a return to the conservative pro-business, low-taxes approach, and the initial prospects look upbeat. But observers are concerned about the hidden costs.

“There’s a feeling of positivity that (Mr Trump’s economic approach) is going to create a lot of growth, but I worry this is largely deficit financing,” Dr Allison Schrager, a senior fellow at the Manhattan Institute, said at a WEF panel in Davos on Jan 20.

“Trump was able to give tax cuts in a very low interest rate environment during his first administration. But he will face higher interest rates this time,” she added. This is in part because of an equilibrium of higher inflation and bond yields.

“This is the central fallacy plaguing both parties now, that there’s this free lunch. The Biden administration thought that all their industrial policy would produce so much growth, it would pay for what it costs. And the Republicans are calling for a supply side idea to cut taxes. Both approaches do produce growth, just not enough to pay for themselves.”

All this does not obscure the larger shift under way in the global economy Mr Trump embodies. 

“It seems like in the post World War II era, we have this idea that better trade policy came from international multilateral groupings. Now we see a lot more bilateral deals, deals among smaller groups of countries, and that’s a big change in the global economic order,” Dr Schrager said.

• Lin Suling is senior columnist at The Straits Times’ foreign desk, covering global affairs, geopolitics and key regional developments.

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