GLOBAL OUTLOOK

Allies and Uncertainties as Trump Returns to Power 

In case anyone hasn’t heard, Donald Trump won the U.S. presidential election last Wednesday. Throughout last week, world leaders reacted to his victory. 

• Ukraine’s President Zelensky congratulated Trump on Wednesday and said he looked forward to "an era of a strong United States of America under President Trump's decisive leadership."

• During Trump’s campaign, he voiced that he would end the war between Russia and Ukraine “in a day” but didn’t specify how he would do that. Zelensky’s government has voiced growing concern that Trump could reduce the aid the US gives Ukraine’s military. Trump consistently voices an “America first” approach to ending the war. Zelensky did not comment on this. 

• Putin personally has not commented on Trump’s win, but Russia’s parliament Leonid Slutsky was quoted saying that there was now “a chance for a more constructive approach to the Ukrainian conflict” 

Many European countries did little to hide their nervousness about Trump being back in office.

• French President Emmanuel Macron wrote on X, “Ready to work together as we did for four years. With your convictions and mine. With respect and ambition. For more peace and prosperity." Their relationship was a bit of a rollercoaster last time due to policy decisions on climate, taxation, and Iran, in particular, which caused friction between Trump and his European allies.

• Over in Germany, Chancellor Olaf Scholz told US presidential election winner Donald Trump that "we're better off together," urging continued close ties between the E.U. and the U.S.. He also stressed the shared importance of democratic values in Germany and the U.S. history in his statement. 

China was all eyes on the U.S. election, and the foreign ministry was careful with its words. Spokeswoman Mao Ning told a news conference that the election is an “internal matter” for the United States and that China respects the American people's choice. America’s approach to China is an extremely important area of foreign policy. 

• U.S.-China relations are already complicated, but Trump’s plan to hit imports from China with 60% or more tariffs would send some serious shock waves and make the relationship unpredictable. 

• These tariffs would be a big concern for China’s local economy, which suffers from low property prices, high debt, and high youth unemployment. 

• The high tariffs would also slow down the amount of technology the U.S. and China trade, which could slow them down from being an AI leader by 2030. 

• As China braces for uncertainties brought on by a second Trump presidency, Beijing will likely pursue alliances outside the Western world. 

As Trump is set to come back to power, global leaders are bracing for a new chapter filled with caution and curiosity. 

Will Europe build an Army?

Following Trump’s victory, the Europeans were faced with a question, what does this mean for our security? From the European perspective the most important foreign policy is the Ukrainian war, and while Trump has not revealed how exactly he would deal with the conflict, a central point of his campaign has been that he would settle the war immediately, however most experts would agree that the deal to settle the Ukraine war would involve cutting off American military aid, a redrawing of the borders in Ukraine and a guarantee that Ukraine would remain neutral against NATO. The response of European leaders has been that of a call for stronger action to defend the continent against the Russian invasion. French President Emmanuel Macron, called for a shift in defense policy asking Europe to stop being “herbivores” and to instead become “omnivores”, meaning to be able to defend themselves without having to rely on the geopolitical support of the US. From the Russian side Putin has congratulated Trump on his victory and expressed interest in negotiating with Trump, for the Europeans settling the Ukraine war in unfavorable terms is an unacceptable outcome. Moreover, some leaders, like the Luxembourg Prime Minister Luc Frieden have expressed support for the creation of a new European army, a prospect which had been looming over the European project since its inception but now might just impetus to come to fruition. Trump’s victory might have pushed the European Union towards greater self-reliance in defense which would inevitably change the balance of power in transatlantic relations.

Germany’s Coalition Collapse: A Political Earthquake with Global Aftershocks

The governing coalition of the German parliament has officially and completely crashed out, prompting calls for new elections to be held before the end of the year. On Wednesday, the German Finance Minister, Christian Linder of the Free Democrats political party, was fired by the current chancellor Olaf Sholz of the Social Democrats party after Linder released a tax plan that “[breached] public trust” and was “fundamentally different” from what they campaigned for. The Free Democrats have consistently promoted pro-business tax plans and policies which oftentimes conflict with other left-leaning parties in the Bundestag, the German parliament. In this case, their tax plan would have cut taxes for top earners while reducing pensions, which prompted the aggressive shutdown by Scholz. This led to several other Free Democrat ministers to resign from office leaving Scholz’s coalition government with only his own party, the Social Democrats, and the Green party. Scholz hopes that he can lead through his minority coalition by working on each bill in collaboration with other parties, but other political officials and economists have expressed that this would damage the German economy and be incredibly difficult to maintain. Either way, Scholz must call for elections eventually, whether or not they happen in January or March. Experts believe this election could have dramatic consequences on the entire world. 

These elections will be particularly important as they will surely reflect America’s impact on international politics. There’s a general consensus amongst academics that as America swings to the left or right, so to do the politics of other democracies. This could mean that Germany will swing conservative to their AfD(Alternative for Germany) party. AfD shares a substantial amount of rhetoric in common with Trump in the topics of anti-immigration, populism, and other “far-right” themes. AfD has already seen success in eastern German states, and sees this upcoming election as an opportunity to expand their presence in the parliament. 

Moreover, the Green party is also expected to be tested by the upcoming elections. Their top candidate for chancellor, Robert Habeck, is known to be popular and an amazing speaker, yet his past policies mandating the replacement of private gas boilers and participation in the current government which has been framed as an economic nightmare hurts his public image. This draws concern for one of the strongest Green parties in the world and jeopardizes the climate goals of one of the most industrial European countries.

MACRO

Trump's Tug-of-War with the Fed: Politics, Policy, and Power

 What’s been going on in the Federal Reserve?

• Last Thursday, as expected, Jerome Powell cut interest rates by 25 basis points. 

  • When interest rates decrease, it becomes easier to take out loans.

• Economists worry about increased inflation that will come with a Trump presidency.

  • This would be due to increased tariffs that will raise consumer prices, which may cause inflation to rise not long after the Fed has made some progress in slowing down.

  • Extension of tax cuts from 2017 seems likely and may be put into place faster due to Trump being in office and a Republican senate. Tax cuts may increase national debt, raise prices, and lead to higher interest rates that have just started to come down.

• Stock markets have soared, which can be credited to Trump's expectations of being less strict on regulations and cutting corporate taxes, but bond yields have also been increasing. The yield on the ten-year treasury, the reference point for mortgages, has gone up from 3.6% in September to 4.34%.

What does Trump’s win mean for the Fed’s independence?

Trump spent his first presidency pushing policymakers to cut interest rates and calling Fed officials names that ranged from “boneheads” to “enemy.” He has been promising that interest rates will come down, even though the Fed, a politically independent institution that the president has no direct control over, sets rates. 

During Mr. Trump’s first term as president, he elected Jerome H. Powell, the Fed chair, then quickly became sour towards Powell as he had resisted his calls to sharply lower interest rates. 

While he tried to fire Mr. Powell, his team concluded that doing so was legally complicated. While Trump and his team could not fire Mr. Powell, he will now, as the 47th president of the U.S., get the chance to:

• Replace the central bank chief in 2026, as Mr. Powell’s leadership term ends, and 

• Replace one member of the Fed’s seven-member board of governors in early 2026.

Who is sitting at the heart of the Federal Reserve, or the Fed, matters because Trump will ultimately push for lower interest rates, both publicly and privately. If these lower rates are pursued, Trump will break a decades-long tradition in which presidents avoid discussing central bank policy or deference to the institution’s independence.

Topper Trump Trades

Stocks:

Trump’s promises of tax cuts, tariffs, and economic deregulation inspired future expectations of continued growth, driving a rally in financial, industrial, and small-cap stocks. Conversely, EV and clean-energy shares dropped out of speculations that climate-policy funding would face a rollback under Trump’s administration. Tesla was spared from the bearish sentiment on green technology stocks thanks to founder and CEO Elon Musk’s close affiliation with Trump. Musk will reportedly be appointed as the head of a soon-to-be government efficiency commission. 

Broadly speaking, the markets surged, with all three major indexes achieving record gains. The Dow Jones Industrial Average rose 3.6% (1,508 points), which was its largest percentage gain since November 2022. Meanwhile, the S&P500 and NASDAQ Composite climbed 2.5% and 3% respectively. 

Bonds:

 Long-term treasury yields (10-year notes) rose to 4.425%. Yields rose in response to widespread bond selloffs – a sign that investors believe Trump’s policies could throttle up inflation. Climbing yields promise higher returns to investors, which raised demand for the U.S. dollar, both domestically and internationally. Demand also surged beyond the bond market, thanks to the possibility of tariffs that would increase firms’ reliance on the U.S. dollar. Ultimately, higher demand for U.S. currency could drive inflation higher. This consequence, coupled with the beginning of the Federal Reserve’s rate cut treatment, only serves to create more uncertainty in a post-soft landing economy. 

Alternative Assets:

In March, Trump pledged to create a “strategic bitcoin reserve” (Wall Street Journal) to make America “the crypto capital of the world”(Wall Street). Uncle Sam’s increased faith in the godfather of cryptocurrency sowed investors' confidence, translating to a 9% hike in Bitocin’s price following the election. Another notable currency, Dogecoin, leaped 18% (Associated Press). While Crypto rose, gold prices fell as expectations of social unrest following the election didn’t come to fruition. In other words, gold investors prayed for a downfall that never happened and are now paying the price for making a losing bet. 

TECH

Jeff Bezos and OpenAI Bet Big on Robotics Startup “Physical Intelligence”

Last Monday, in a high-stakes investment for AI and robotics, Jeff Bezos, OpenAI, and key venture capital firms like Thrive Capital invested $400 million into San Francisco-based startup Physical Intelligence. This infusion, which brings the company’s valuation to a whopping $2.4 billion, signals a strategic push to develop adaptable “robot brains” that can seamlessly control various types of robots for diverse tasks.

The Technology Vision

Physical Intelligence (or “Pi”) envisions a future where robots can perform everyday tasks, from folding laundry to loading grocery bags, using a universal AI model. Unlike traditional robotics, which typically requires custom software for each machine or task, Pi’s software aims to be a versatile “generalist brain,” enabling one AI model to control any robot. This approach could standardize robotics functionality in sectors like manufacturing, logistics, and even household chores, significantly lowering development costs and scaling possibilities.

Economic Implications and Market Impact

With this latest funding round, Physical Intelligence has entered a competitive field where giants like Amazon and Alphabet have invested billions to develop robotics solutions. The company’s AI-powered technology could transform labor-intensive sectors by automating repetitive tasks, potentially driving efficiencies across industries and reshaping job roles in warehousing, manufacturing, and retail sectors.

This technology represents a lucrative market for investors, with projections that robotics and AI will contribute $1 trillion in economic value by 2030. If Pi can establish a dominant position in the robotics AI market, Bezos and OpenAI’s investment could yield substantial returns and influence further capital flow into AI-driven robotics.

While promising, the technology could also raise concerns around workforce automation and job displacement, a topic likely to attract scrutiny as Physical Intelligence models begin implementation in more industries. As the technology evolves, investors and companies will need to weigh the benefits of efficiency against the potential socio-economic impacts on employment.