The first 100 days: Trump 2.0 and the road ahead for U.S. economy and markets
Investing.com -- President Donald Trump’s return to the White House has brought a fast-paced first 100 days, filled with many executive orders and major policy changes.
As the oldest president ever inaugurated, Trump is pursuing an aggressive agenda aimed at remaking the federal government, reversing his predecessor’s initiatives, and reasserting U.S. economic power through tariffs and deregulation.
With over 140 executive orders signed and Republican control of Congress hanging in the balance ahead of the 2026 midterms, urgency defines every move.
Here, we assess the early impact of Trump’s policies, the market turmoil triggered by his tariff campaign, and the path ahead as volatility becomes the new normal.
U.S. tariff rate surges to highest since 1930s, driven by China levies
The effective U.S. tariff rate has surged to roughly 25% in 2024 from just 2.5% a year earlier, marking the highest level since the Smoot-Hawley tariffs of the 1930s.
The increase, driven by a wave of executive orders under President Donald Trump’s second term, is heavily skewed by more than 100% in levies on Chinese goods—rendering many trade flows with China economically unviable. While North American partners have avoided the harshest penalties, geographic disparities remain wide.
Trump has leaned heavily on the International Economic Emergency Powers Act (IEEPA) to justify the tariffs, a legal maneuver now facing a growing number of lawsuits. Even if courts strike down tariffs under IEEPA, the administration could revive them using alternative statutes, such as Section 232 or Section 301.
Overall, roughly 15% of Trump’s second-term executive orders have been tied to trade measures. Analysts expect the effective rate to settle closer to 15% by year-end, contingent on a rollback in China tariffs—an uncertain prospect.
"We should expect the administration to reach agreements to lower certain tariffs and businesses to adapt to a new, higher level of tariffs," UBS strategists wrote in a client note.
As a result of tariffs, inflation risks also loom, especially with the U.S. dollar weakening.
Federal spending climbs despite DOGE-driven euphoria
Despite headlines highlighting government layoffs and sweeping budget cuts, federal spending has actually accelerated in the early months of 2025. According to UBS, expenditures are running at a slightly faster pace than during the same period in 2024.
A major driver of this increase is surging interest payments on Treasury securities, which are on track to rise by an annualized $60 billion compared to last year. The uptick reflects not only the growing national debt but also the higher interest rates attached to newly issued bonds, which are replacing older, lower-yielding debt.
Looking ahead, whether federal spending ultimately declines will hinge on a number of unresolved factors. Key among them are court battles over the executive branch’s budgetary powers and the fate of a reconciliation bill currently moving through Congress.
That legislation aims to slash social program spending and trim provisions from the Inflation Reduction Act, while simultaneously boosting funding for border security and defense. At the same time, it proposes only limited new revenue—especially if expiring tax cuts are extended or further reduced.
"Federal deficits as a share of GDP were double 2015 levels at the start of Trump’s second term and will likely rise further without other revenue offsets like tariff revenue," UBS said.
Sharp (OTC:SHCAY) drop in border crossings; labor risks loom
Encounters along the U.S. southern border have dropped significantly since President Donald Trump returned to office in January. The administration’s move to declare a national emergency at the border—used as a legal basis to impose 25% tariffs on Mexico under the IEEPA— appears to have prompted swift action from Mexican officials seeking exemptions.
Stricter enforcement and heightened cooperation have contributed to a notable decline in undocumented immigration, with further reductions anticipated in the coming months. The White House has also expressed intent to accelerate deportations and slow legal immigration.
These changes are expected to impact the labor market beginning in the second half of 2025, as fewer immigrants enter the workforce. With immigration playing a crucial role in many sectors, particularly those requiring lower-skilled labor, the decrease in available workers could pose a challenge to job growth—especially if economic conditions remain soft.
The reconciliation bill under consideration in Congress includes additional funding for border security, which could further boost deportation efforts. Whether these shifts trigger significant worker shortages will depend on how labor demand evolves in a cooling economy.
Tariffs fuel stagflation fears as confidence slumps
Stagflationary pressures are mounting as U.S. tariffs and policy uncertainty drag down growth forecasts and push inflation higher. Bloomberg’s surveyed economists now project U.S. GDP growth at just 1.4% in 2025, down from 2.1% at the start of the year, while inflation expectations have risen from 2.5% to 3.2%.
The economic impact of tariffs is expected to be more pronounced in the U.S. than in other major economies, prompting a downgrade in growth forecasts for the Eurozone (0.7%) and China (under 4%) as well.
"We believe the Fed will cut interest rates by 75-100 basis points beginning in September when the labor market is likely to show weakness," UBS economists said.
But with inflation still elevated, the Fed faces limited near-term flexibility. This tension has fueled renewed threats from President Trump to remove Chair Jerome Powell, though he later walked them back amid market instability.
Meanwhile, consumer confidence is deteriorating. The University of Michigan’s sentiment index shows Democrats deeply pessimistic under Trump 2.0, while Republican optimism has risen despite overall sentiment falling to levels last seen during the 2008 crisis.
The American Association of Individual Investors (AAII) survey shows just 21.9% of investors expect the S&P 500 to rise over the next six months—historically a bullish contrarian signal.
Markets recover as “Trump put” signals flexibility
Markets appear to be stabilizing following the Trump administration’s surprise pause on some tariffs, signaling a possible “Trump put” as officials reacted to equity and bond market turbulence.
"Although we remain optimistic in the long term, the weight of the evidence suggests the near-term risk/reward profile is less favorable following the sharp market rebound," Keith Lerner, Co-Chief Investment Officer and Chief Market Strategist at Truist Advisory Services, wrote on Friday.
Trump’s tariff-pause move suggested a degree of responsiveness to market stress, and with over 90 countries open to negotiations, a wave of trade carveouts or partial deals could materialize within the 90-day window—potentially extending further to maintain momentum.
Since Trump’s second inauguration, U.S. stocks have notably underperformed their developed-market peers, underscoring the importance of geographic diversification amid heightened policy risk.
"We expect the S&P 500 to rise to 5,800 by the end of 2025 as tariff uncertainty eases, the Fed likely cuts interest rates, and investors’ focus shifts toward the prospect of a rebound in US earnings growth in 2026.
We believe that phasing-in or capital preservation approaches can allow investors to benefit from medium-term growth while managing near-term timing risks," UBS strategists added.
Elsewhere, treasury yields surged and the dollar weakened following the tariff announcement, prompting concerns about declining foreign demand for U.S. assets. Meanwhile, gold has outshined other assets and may even test $4,000/oz if political risks escalate further heading into the election cycle.
The way ahead: How to navigate volatility and political risk
UBS advises investors to manage ongoing market volatility by adopting a layered strategy that hedges against downside while preserving upside potential. For those concerned about short-term risks, gold remains a cornerstone hedge, with UBS raising its price target to $3,500/oz through early 2026 on safe-haven demand and structural buying.
Investors are encouraged to buy on dips or use capital preservation tools in equities to lock in gains. Silver is also recommended as a complementary asset supported by rising investment demand.
Investors underexposed to risk assets may consider phasing into equities, as UBS expects markets to rebound by year-end driven by tariff de-escalation and monetary easing. The recent volatility, UBS adds, has also created tactical entry points in quality stocks across the U.S., Europe, and Asia.
Meanwhile, long-term structural themes such as AI, longevity, and energy transformation remain intact despite recent derisking. UBS views the sell-off as an opportunity to build exposure to these "transformational" opportunities.
