Four US economic policy shifts of 2025

Astonishingly, these shakeups have failed to unsettle the US or global economy — but 2026 will tell whether that continues

- TT RAM MOHAN

In 2025, the world saw one tectonic shift in United States (US) economic policy and at least three others that were consequential. These shifts will not be easy to reverse even if there is a change in administration in the US down the road. How exactly they will impact the US and the world is unclear at the moment. What is clear is that the rest of the world will have to adjust to them.

First, the tectonic shift. The US under President Donald Trump has decisively upended the free-trade regime that has underpinned the world economy for decades. The world has to live with a US base tariff level of 10 per cent, plus an element that will vary from country to country and from time to time, depending on how the US perceives its trade relationship with that country.

This will be reinforced by even higher tariffs for sectors, such as steel and aluminium, which are perceived to be of strategic importance to the US economy. ‘The weighted average tariff under President Trump has risen from below 3 per cent to around 19 per cent.

During the year, major nations settled for deals with the US that are hopelessly one-sided. The European Union (EU), for instance, faces a tariff of 15 per cent (with higher tariffs on steel and aluminium) while US exports to the EU face zero tariff. For the privilege of doing business with the US, the EU has committed to spending an additional $750 billion on US energy products (over three years), investing $600 billion in America, and buying US military equipment worth “hundreds of billions of dollars”.