As delegates convened for champagne at a hub of the US stock market on the Davos Promenade to witness Donald Trump’s inauguration, a palpable excitement filled the air.
One executive reflected on the prospects of Trump invigorating the stock market: “His agenda is clearer than in 2016.”
However, as Trump commenced his speech, there were moments of shock. His pledge to deport “millions” of undocumented immigrants led one delegate to murmur: “He clearly doesn’t have a gardener.”
Trump’s comeback overshadowed the 55th session of the World Economic Forum (WEF). Each panel discussion and keynote address was dominated by the question of whether he would stimulate the US economy or lead the global order to turmoil.
Donald Trump was inaugurated as US President on Monday
The WEF organizers strive to merge top-tier capitalism with enlightened discussions on poverty, refugees, gender equality, and addressing climate change (2024 marked the hottest year on record).
They never miss a chance to spotlight the positives, with the WEF literature celebrating AI, quantum computing, energy tech, biotech, and health tech as potential drivers of “productivity and thereby standards of living.”
There was talk of a ceasefire in Gaza, a new beginning in Syria, and indications that the global economy was on the mend (PwC’s survey of 4,000 global CEOs revealed that three in five were hopeful about economic growth).
In the realm of geopolitics, could the sheer energy of Trump’s return resolve some long-standing geopolitical issues?
“Trump 2.0 actually helped facilitate the [Gaza] ceasefire,” noted Mina al-Oraibi, editor of the United Arab Emirates newspaper The National.
“This is the same agreement that 13 months ago the Americans said they could achieve under a Joe Biden administration, but it was ultimately the Trump factor that made it happen.”
As the week progressed, enthusiasm from the US corporate sector grew.
“Trump gives America a real chance to restore its animal spirit,” Richard Edelman, president of the global PR firm bearing his name, told CNBC.
“Expect reduced regulation, increased energy supply, a more functional market, and I believe Trump is a significant boost for business.”
Conversely, WTO Director-General Ngozi Okonjo-Iweala cautioned: “If we engage in tit-for-tat retaliation, whether through a 25% tariff or 60%, we could face double-digit global GDP losses. That would be catastrophic. Everyone will suffer.”
Ngozi Okonjo-Iweala speaking on the first day at Davos
Then came Thursday.
In a dizzying speech, Trump outlined an ultra-deregulated US economy propelled by crypto, AI, and accelerated fossil fuel extraction and consumption.
Global companies would be enticed to the US by a 15% corporate tax rate — or face tariffs. Interest rates would drop, employment would rise, and inflation would decrease.
A new ‘Golden Age for America,’ with a utopian vision spreading worldwide.
“Our country will soon be stronger, wealthier, and more united than ever, and the entire planet will experience greater peace and prosperity as a result of this incredible momentum,” Trump declared in a packed Congress Hall.
With one sweeping statement, Trump shattered the prevailing orthodoxy: targeted state intervention to address the economic fallout from the pandemic and transition the West to a digital, carbon-neutral economy.
Joe Biden executed this approach with the Inflation Reduction Act (IRA). The EU followed suit with the Covid Recovery and Resilience Fund (RRF) and the European Green Deal. The Mario Draghi report advocated further borrowing to meet climate goals, enhance competitiveness, and increase defense spending.
Now, Trump is dismantling that model: in its place, ultra-liberalism, the retreat of the state, economic nationalism — disregarding climate concerns.
Europe is being told that the rules have changed just as it was beginning to confront a nearly unwinnable battle.
In Davos, Europe’s decline felt like an even more profound issue compared to the allure of Trumponomics.
“There is too much pessimism in Europe,” Blackrock CEO Larry Fink stated at a panel yesterday. “I’ve never felt it more intense.”
During a Tuesday panel, Financial Times editor Roula Khalaf referenced the Draghi report.
“On a per capita basis, real disposable income has nearly doubled in growth in the US compared to the EU since 2002; only four of the world’s top 50 tech companies are European; if the EU maintains its average productivity growth since 2015, it would keep GDP constant only until 2050.
“There hasn’t been a single EU company with a market valuation over €100 billion established from scratch in the last 50 years, while all six US companies valued above €1 trillion were founded in this period.”
Draghi’s successor, ECB President Christine Lagarde, concurred. This represented yet another wake-up moment for Europe, but there were some positives.
Christine Lagarde gestures as she addresses the audience at Davos
“We possess the talent, finance, and innovative ideas. In critical areas for the future, we file as many patents as the United States. We have numerous assets yet often undermine ourselves because we fail to finalize the work we initiate (i.e., completing the Single Market).”
Ursula Von der Leyen, President of the European Commission, cautioned about the EU’s ability to compete in “a harsh new era” while preserving Europe’s strengths.
“Europe has a unique social market economy,” she said. “We have the second-largest economy and the largest trading sector globally. Our life expectancy is longer, and we maintain higher social and environmental standards with lower inequalities than all our global competitors.”
She pledged pragmatic engagement with Trump, a commitment to the Paris Climate Accord, and hinted at strengthening ties with India and China (all 27 EU Commissioners are set to visit India for two days at the end of February to enhance trade).
However, the EU’s revival of trade agreements faces obstacles. The Mercosur deal, the most significant global free trade agreement in history, still encounters strong opposition from certain member states, including Ireland.
Moreover, the argument that the deal is beneficial as it legally binds both sides to the Paris Accord has already been challenged: Argentina’s Trumpist leader Javier Milei, a signatory to Mercosur, has suggested he may abandon the Paris agreement.
Not everyone in Davos applauded Trump’s Godzilla-like economics.
Jose Vinals, president of Standard Chartered Bank, noted that his tariff threats could lead to market volatility and increased US inflation.
“We need to prepare for that,” he remarked. “The market is attempting to gauge the potential scope of tariffs that the United States may impose on other nations.”
Fernando Honorato Barbosa, Chief Economist at Banco Bradesco, shared during a panel on Wednesday: “We’re discussing a world with heightened import tariffs, increased fragmentation, leading to a lower efficiency environment. If we face reduced globalization and rising trade barriers, it implies that companies will incur higher costs, and consumers will encounter elevated prices.”
Meanwhile, there was no lack of praise.
UN Secretary General António Guterres commended Trump’s “robust diplomacy” in facilitating the Gaza hostages-ceasefire negotiations.
A screen displaying António Guterres during an address at Davos
While he criticized financial institutions and industries retreating from their climate commitments as being “on the wrong side of history… the wrong side of science,” he overlooked Trump’s repudiation of the Paris Accord (EU climate commissioner Wopke Hoekstra called it “truly unfortunate”).
If flattery fails, maybe Trumpian transactionalism could work?
Ireland’s EU Commissioner Michael McGrath confirmed to RTÉ News that Brussels is preparing to collectively purchase more American Liquefied Natural Gas (LNG) as per Trump’s request.
“It is a legitimate option,” he stated. “The EU has been preparing for the incoming administration for some time and is ready to propose a package that would enhance and fortify the Transatlantic economic and trade relationship.”
How this would materialize remains uncertain.
European imports of Russian LNG have been rising, so switching to US gas would carry political weight.
Still, the United States is producing at full capacity, with rising domestic consumption partly due to AI’s high energy demands.
This implies limited excess capacity available for export; furthermore, private companies — not governments — are the ones importing oil and gas, driven by price rather than political factors.
Wall Street is unlikely to invest in revived drilling if the price of oil appears to be declining, according to the Financial Times
There are additional risks, particularly for Ireland.
Trump appears to be using tariffs as a form of blackmail rather than for protectionist purposes, targeting countries to stop them from taxing US firms operating on their soil, or as he threatened on Thursday, incentivizing businesses to relocate to the US.
Scott Bessent, his incoming Treasury Secretary, articulated it more diplomatically in a previous article: “Macro-level interventions, such as broad-based tariffs, will be more effective than microeconomic interventions, like industrial policies that generally rely on government picking winners and losers.”
America’s abundant and low-cost energy could further entice corporations to relocate there (a senior Intel executive mentioned this week that operating costs per kilowatt hour at its Kildare facility are double those in Israel or the US, although the plant is deemed “critical” for its European operations for at least seven more years).
Trump’s strategies could still falter, particularly if inflation escalates.
He has criticized the multi-billion dollar subsidies of Joe Biden’s Inflation Reduction Act, meaning its beneficiaries — including some European companies — could revert back to the EU.
The Financial Times reported that Wall Street is unlikely to inject billions into renewed drilling and shale projects if oil prices look poised to drop.
Friedrich Merz, anticipated to be the next German Chancellor, remarked in Davos that when Trump previously imposed tariffs on European steel and aluminum, the EU retaliated by increasing duties on Levi jeans, Jack Daniels, and Harley Davidsons.
“Within six months, the issue was resolved,” he told delegates on Tuesday. “The sole approach… is to be assertive on the European side and to negotiate with the American side from a position of strength, identifying where our political interests align and… where we should safeguard our own interests.”
The EU’s climate and competition commissioner Teresa Ribera criticized Trump’s brand of economic populism and “parties claiming to represent the [working] classes while opposing climate action.”
“The climate crisis will impact [the] quality of life, health, and prospects for individuals worldwide, as well as economic stability. We’ve witnessed its effects in wildfires in Los Angeles and flooding across various regions, including Spain.”
Key figures at Davos concurred on one point: the much-needed wake-up call for Europe has now escalated into an existential challenge, owing to Donald Trump’s resurgence.
Expect intensified discussions on Europe enhancing its competitiveness, reducing red tape, and developing a capital markets union (as IMF boss Kristalina Georgieva noted, the US’s vastly superior productivity is bolstered by its low energy costs and deep, liquid capital markets).
During Trump’s first term, Europeans often did not perceive him literally, or even seriously. This time, that luxury is no longer available.
