Here are the top 5 global economic challenges for 2025
December 27, 2024
1. Donald Trump 2.0 starts in January
Unpredictability is likely to be the guiding force for 2025 and beyond. And nearly all of it will be in the hands of one man: Donald Trump, the President-elect of the world's biggest 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 far-away wars will be decided in large part in Washington, DC. This is nothing new. What is new is the uncertainty of it all and the level of chaos that could surround such decisions.
Trump has called international cooperation into question and disparaged allies and NATO. New trade alliances and an inward-looking America could have unintended consequences. A lack of clear US leadership will leave openings for countries like 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 unnerving. 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 across-the-board tariffs of 10-20% on all goods entering the US and up to 60% on Chinese goods starting on his first day in office.
More recently, he fine-tuned that to a tariff of 25% on all goods from Mexico and Canada. Chinese goods would only be hit with a 10% tariff. Mexico promised counter-tariffs. China could do the same. Canada's prime minister, Justin Trudeau, visited Trump in Florida to try and avoid the whole thing.
For businesses with a global supply chain, escalating tariffs would be bad news. These duties would harm America's neighbors and likely break up the United States-Mexico-Canada Agreement (USMCA), a free trade deal made during Trump's first term in office.
Currently, around 80% of Mexico's and over 75% of Canada's exports go to the US. More than half of America's imports of fruits and vegetables come from Mexico. The US imports lumber and millions of barrels of crude oil daily from Canada.
Ultimately, American shoppers will be hit with higher prices and may encounter empty shelves. Some claim Trump is using the threat of tariffs as a negotiating 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 is not just goods that could meet walls. Global migration will increasingly be met with literal walls. Leaders worldwide are feeling the need to show that 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, the Republicans promised to "carry out the largest deportation operation in American history" in their 2024 GOP Platform. It is an idea Trump has latched on to.
Besides deportations and tougher action along the border with Mexico, he vowed in an interview in early December to end automatic citizenship for anyone born in the US.
The US president does have a lot of authority when it comes to irregular immigration, but most of his proposals will end up in court. He also has the power to gum up legal immigration by capping 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 could be left to rot and entrepreneurs may set up shop in other countries.
A tighter Mexican border will have an impact on people from Latin America, especially countries like Cuba, Haiti and Venezuela.
The US is not alone in souring on immigration. The European Union has promised to clamp down on irregular migration. Italy is trying to process refugees in Albania, and immigration will be a big issue in Germany's upcoming election.
4. Wars in Ukraine, the Middle East and beyond
Going into 2025, the world is experiencing several armed conflicts. These wars have caused destruction and humanitarian calamities. 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 for the three years since being invaded. Since America is its biggest backer, this could pressure Ukraine to the bargaining table.
Israel's war against Hamas being played out in Gaza and, more recently, in Lebanon is also ongoing and could expand in the future. In Asia, China continues to claim Taiwan, which fears an imminent invasion.
For decades, US leadership has helped balance global scales. But Trump has called that into question. If America won't 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. Is an AI boom finally coming?
The introduction of OpenAI's ChatGPT at the end of November 2022 was the starting gun for wider artificial intelligence (AI) use. Within weeks, it had 100 million users.
Still, AI has been slow to change the lives of ordinary workers and businesses. However, using technology to create medicines or help with military defense is a tall order. Companies must design policies on how and when to use AI — and encourage employees to use it.
To keep up, AI providers are investing heavily in big data centers. To keep these centers running and cool, massive amounts of electricity are needed. Microsoft is behind plans to restart a nuclear power plant in Pennsylvania and Google is betting on tiny nuclear reactors to power their data centers.
Will 2025 be the year AI finally becomes the game-changer its backers promised? Investors, creators and users will have to wait and see if all that electricity is worth it, or they could just ask ChatGPT.
Edited by: Uwe Hessler