Economic Report: The State of The Global Economy

Trump’s America First Agenda Reshapes Global Trade While Europe Struggles with Self-Inflicted Wounds

The global economic landscape in mid-2025 presents a tale of two continents: an America boldly reasserting its economic sovereignty under President Trump’s leadership, and a European Union mired in the consequences of years of failed policies and bureaucratic overreach.

While short-term disruptions from America’s new trade stance have created volatility, the underlying strength of the US economy remains robust. Meanwhile, European leaders continue to preside over stagnant growth and structural weaknesses that threaten the continent’s long-term prosperity.

The Trump Trade Revolution: Short-Term Pain for Long-Term Gain

President Trump’s aggressive trade policy implementation has fundamentally altered global economic dynamics. The administration’s widespread 10% tariffs on nearly all countries, alongside specific levies on steel, aluminum, and automobiles, represent a dramatic shift toward protecting American workers and industries.

The immediate impact was visible in Q1 2025, when US GDP contracted by 0.2% on an annualized basis. However, this contraction tells a story of tactical maneuvering rather than economic weakness. Businesses rushed to import record amounts of goods to avoid future tariffs, creating an artificial trade imbalance that subtracted 4.9 percentage points from GDP growth.

This front-running behavior actually demonstrates business confidence in the underlying economy. Companies wouldn’t stockpile inventory unless they expected strong future demand. As these distortions unwind, Q2 growth is forecast to rebound sharply to 3.8%.

The legal challenges to some tariff implementations, with federal courts ruling certain IEEPA tariffs illegal, showcase America’s robust system of checks and balances. Rather than undermining the policy, these rulings refine it, potentially reducing projected revenue impacts while maintaining the core protectionist framework.

The Data:

Specific Consumer Price Index (CPI) data for the period reveals:

• March 2025: CPI stood at 319.615 (seasonally adjusted). The month-over-month (MOM) change for all items was -0.1%, and for all items less food and energy (Core CPI) was 0.0%. The year-over-year (YOY) CPI was 2.3%.   
• April 2025: CPI reached 320.321 (seasonally adjusted). The MOM change for all items was 0.2%, and for Core CPI was 0.2%. The YOY CPI was 2.3%,
• May 2025: CPI registered 320.580 (seasonally adjusted). The MOM change for all items was 0.1%, and for Core CPI was 0.1%. The YOY CPI was 2.4%.   

The Federal Reserve’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) Price Index, showed:

• March 2025: Headline PCE YOY increased by 2.3%, while Core PCE YOY rose by 2.6%. Month-over-month, headline PCE decreased less than 0.1%, and Core PCE increased less than 0.1%.   
• April 2025: Headline PCE YOY increased by 2.1%, and Core PCE YOY rose by 2.5%. Month-over-month, headline PCE increased by 0.1%, and Core PCE also increased by 0.1%.   
• May 2025: Cleveland Fed Nowcasting estimates Headline PCE at 2.25% and Core PCE at 2.58%. Official BEA data for May PCE is scheduled for release on June 27, 2025

Table: Key US Economic Indicators (March-May 2025)

The One Big Beautiful Bill: Economic Rocket Fuel

The crown jewel of Trump’s economic agenda, the “One Big Beautiful Bill” (OBBB), successfully passed the House on May 22, 2025. This transformative legislation promises to supercharge American prosperity through permanent tax cuts, 100% expensing for new factories, and targeted relief for seniors, tipped workers, and overtime earners.

Critics, including the Congressional Budget Office, warn about adding $2.4 trillion to the national debt over a decade. However, this analysis fails to account for the dynamic growth effects of unleashing American enterprise. The bill’s provisions for domestic manufacturing, particularly the 100% expensing for new factories and “Made in America” initiatives, will create a manufacturing renaissance.

Elon Musk’s involvement in government efficiency efforts signals a new era of innovation in public administration. While debt concerns are legitimate, the combination of private sector efficiency and targeted tax relief creates conditions for explosive growth that static budget models cannot capture.

The OBBB also includes a visionary 10-year moratorium on state-level AI regulation, recognizing that America’s technological leadership cannot be hampered by a patchwork of conflicting state rules. This positions the US to dominate the AI revolution while Europe drowns in regulatory quicksand.

Labor Markets: Resilience Through Uncertainty

Despite apocalyptic predictions from Trump’s critics, the US labor market demonstrates remarkable resilience. The unemployment rate has held steady at 4.2% through March, April, and May 2025, even as businesses navigate policy uncertainty.

A fascinating phenomenon has emerged: “labor hoarding.” Rather than conducting mass layoffs, employers are retaining workers despite slower activity. This reflects business confidence in Trump’s long-term vision and recognition that skilled workers will be even more valuable once current uncertainties resolve.

Job additions have moderated to 139,000 in May from 147,000 in April, a healthy pace that prevents economy overheating while maintaining full employment. Real wages continue growing at nearly 1% above pre-COVID levels, ensuring American workers enjoy tangible prosperity gains.

The 625,000 drop in labor force participation in May likely reflects older workers choosing retirement, enabled by Trump’s pro-growth policies that have boosted retirement portfolios. This voluntary exit creates opportunities for younger workers while reducing pressure on social services.

Inflation: The Fed’s Misguided Fears

Federal Reserve Chairman Jerome Powell’s hand-wringing about potential tariff-induced inflation reveals a fundamental misunderstanding of Trump’s strategy. Current inflation data remains remarkably benign, with CPI increasing just 0.1% month-over-month in May and 2.4% year-over-year.

The Fed’s own preferred measure, PCE inflation, shows even more modest increases. Yet Powell and his colleagues fret about future price pressures from tariffs, threatening to raise rates and choke off growth.

This represents outdated economic thinking. Tariffs are a one-time price adjustment that protects American jobs and wages. The alternative – continued deindustrialization and wage stagnation – represents a far greater threat to American prosperity than modest price increases on imported goods.

Business contacts reporting plans to pass through tariff costs within three months are simply adjusting to new market realities. American consumers have repeatedly shown willingness to pay slightly more for products that support domestic employment and national security.

The AI and Energy Revolution

Perhaps no sector better exemplifies Trump’s economic vision than the booming AI infrastructure industry. The administration’s hands-off regulatory approach, codified in the OBBB’s 10-year AI regulation moratorium, has unleashed unprecedented innovation.

Data centers, AI computing facilities, and related infrastructure investments are surging. This boom extends beyond software to include hardware manufacturing, creating high-paying jobs across the skill spectrum.

The administration’s pragmatic energy policy, including Trump’s strategic May visit to Gulf states to secure energy deals, ensures adequate power for this technological revolution. While critics bemoan the rollback of costly clean energy subsidies, Trump recognizes that AI leadership requires reliable, affordable energy from all sources.

Elon Musk’s companies perfectly embody this balanced approach – pushing the boundaries of clean technology while maintaining pragmatic business models. His involvement in government efficiency initiatives promises to bring similar innovation to public sector operations.

Europe’s Self-Inflicted Decline

While America surges forward, the European Union stumbles under the weight of its own failed policies. The EU’s projected GDP growth of just 0.9% in 2025 represents economic stagnation, not recovery.

European Central Bank President Christine Lagarde’s monetary policy flailing exemplifies the continent’s leadership crisis. Despite cutting rates, the ECB remains constrained by structural inflation and a pathetically low neutral interest rate below 1%, compared to America’s healthy 3%.

The EU’s excessive trade openness, celebrated by Brussels bureaucrats as a virtue, has become its greatest vulnerability. European manufacturers face extinction as American tariffs expose their lack of competitiveness.

Industrial production across the EU has declined since Q1 2023, with no recovery in sight. This isn’t a cyclical downturn but structural decay resulting from excessive regulation, costly climate policies, and failure to invest in defense and technology.

Germany: From Powerhouse to Basket Case

Germany’s precipitous decline under Chancellor Olaf Scholz represents Europe’s failures in microcosm. Industrial output fell 1.3% in February 2025 alone, with construction and energy sectors collapsing by over 3%.

Once Europe’s export champion, Germany now watches helplessly as American trade policy exposes its dangerous dependence on foreign markets. The continuing drop in foreign orders signals an export industry in terminal decline.

Germany’s ruinous Energiewende (energy transition) adds insult to injury. New feed-in tariffs exceeding €16 billion in 2025 pile costs onto already struggling businesses. While Trump unleashes American energy abundance, Germany’s leaders double down on expensive, unreliable renewables.

The contrast with American dynamism couldn’t be starker. While US manufacturers benefit from 100% expensing and cheap energy, German companies suffocate under green regulations and soaring power costs.

Italy: Debt Trap Under Meloni’s Watch

Despite initial optimism about Giorgia Meloni’s leadership, Italy remains mired in its traditional economic malaise. Public debt stands at 135.3% of GDP and rising, with debt servicing consuming 4% of national output.

Italy’s chronic productivity weakness, declining for two decades, reflects failed leadership across the political spectrum. Low R&D investment, skills mismatches, and a sclerotic corporate sector doom the country to perpetual stagnation.

While Meloni talks tough on immigration, she’s failed to address Italy’s fundamental economic weaknesses. The coalition government’s attempts to balance growth stimulus with debt sustainability represent more can-kicking rather than genuine reform.

Youth unemployment and low female workforce participation persist despite endless EU programs and subsidies. Italy exemplifies how European welfare states create dependency rather than opportunity.

Britain’s Post-Brexit Struggles

The United Kingdom’s economic performance under Labour’s Keir Starmer vindicates Trump’s critique of European-style governance. GDP growth projections of just 1.2-1.6% for 2025 represent barely perceptible progress.

Inflation running at 2.6-3.5% well above target reveals the Bank of England’s incompetence. Governor Andrew Bailey’s timid rate cuts to 4.75% fail to address either inflation or growth challenges.

Brexit, rather than liberating Britain’s economy, has exposed how deeply European-style thinking infected British institutions. Trade barriers and labor shortages stem not from leaving the EU but from failure to embrace truly free market policies.

Consumer confidence remains depressed as strikes proliferate across healthcare and transport. Rather than unleashing entrepreneurship like Trump, British leaders perpetuate European-style industrial conflict.

Greece: A Cautionary Tale

Greece’s supposed recovery under Kyriakos Mitsotakis masks continued structural weakness. Despite debt falling to 153.6% of GDP – still catastrophically high – the country remains one shock away from another crisis.

Inflation at 3.1% in March reveals the ECB’s monetary policy failure. While Powell worries about non-existent American inflation, actual European inflation erodes living standards across the periphery.

Greece’s dependence on EU recovery funds and tourism exposes its failure to build a productive economy. Brain drain continues as talented Greeks flee to countries offering real opportunity – increasingly including Trump’s America.

The rollover of concessional loans to market rates represents a ticking time bomb. Unlike America’s growth-enhancing debt, Greece’s borrowing funds consumption and bureaucracy rather than investment.

The Financial Market Implications

Smart money recognizes these divergent trajectories. US corporate earnings projections of 7% growth in 2025 and 9% in 2026 far exceed European expectations. The S&P 500’s continued outperformance reflects fundamental economic superiority, not mere sentiment.

Foreign investors continue viewing US assets as safe havens, with high-quality dollar bonds reaching all-time highs in international portfolios. This capital inflow finances American growth while Europe faces investment drought.

Private equity’s cautious optimism about US M&A activity contrasts with European stagnation. Reasonable valuations and Trump’s pro-business policies create compelling opportunities for patient capital.

The dollar’s potential depreciation, feared by some analysts, actually enhances American competitiveness. US multinationals would benefit from currency translation gains while domestic manufacturers gain market share.

Energy: The Great Divergence

Trump’s comprehensive energy strategy ensures American economic dominance. While Europe shivers through energy crises of its own making, America enjoys abundance from diverse sources.

The pragmatic approach to clean energy – supporting innovation without mandates or subsidies – contrasts with Europe’s economically suicidal policies. American frackers, nuclear operators, and yes, renewable developers, compete on merit rather than subsidy.

Elon Musk’s Tesla exemplifies this market-driven approach. His electric vehicles succeed through superior technology and manufacturing efficiency, not government handouts. His criticism of excessive subsidies, even for EVs, shows intellectual honesty rare among business leaders.

Europe’s energy predicament worsens daily. Dependence on imported energy, self-imposed nuclear shutdowns, and intermittent renewables create permanent vulnerability. While Trump secures energy deals ensuring American prosperity, European leaders virtue signal their way to industrial collapse.

The Regulatory Divide

The OBBB’s AI regulation moratorium exemplifies Trump’s understanding that innovation requires freedom. While American companies race ahead in artificial intelligence, robotics, and automation, European firms suffocate under GDPR, AI Acts, and countless other regulations.

This regulatory divergence creates a widening competitiveness gap. American companies will dominate future industries while European firms become technological museums, preserved by protection rather than competing through innovation.

The contrast extends beyond technology. Trump’s push for 100% expensing of manufacturing investment unleashes capital formation. Europe’s complex tax systems and regulatory uncertainty deter investment despite desperate need for industrial renewal.

Financial regulations tell the same story. While Trump removes obstacles to lending and investment, European banks remain shackled by Basel requirements and climate reporting mandates that do nothing for stability while everything to increase costs.

The Infrastructure Investment Boom

Trump’s infrastructure vision, backed by the OBBB’s targeted investments, creates tangible economic benefits. Modernizing air traffic control systems, strengthening border security, and rebuilding defense capabilities generate immediate employment and long-term productivity gains.

These investments focus on genuine infrastructure needs rather than European-style white elephants. Every dollar spent enhances American competitiveness rather than creating dependency.

The contrast with Europe’s infrastructure spending is stark. While EU recovery funds disappear into bureaucracy and corruption, American projects create visible, measurable improvements. Private sector involvement, championed by efficiency czar Musk, ensures market discipline.

State and local infrastructure benefits from federal focus on essentials rather than mandates. The proposed FEMA reform, while controversial, could force states to prioritize real resilience over federal dependency.

The Demographic Dimension

America’s dynamic economy attracts global talent despite tighter immigration controls. Skilled workers recognize opportunity and choose America over stagnant Europe. This selective immigration enhances rather than dilutes American economic strength.

Europe faces demographic catastrophe. Aging populations, low birth rates, and failed integration of previous immigration waves create unsustainable welfare burdens. While Trump’s America attracts contributors, Europe attracts dependents.

The labor hoarding phenomenon in America reflects employer confidence in finding productive uses for workers. European firms, facing structural decline, have no such optimism. Youth unemployment across southern Europe represents wasted human potential.

American flexibility allows older workers to exit gracefully while creating opportunities for the young. European labor market rigidity traps both groups – older workers can’t afford retirement while youth can’t find entry.

Looking Ahead: Two Divergent Paths

The trajectory seems clear. Trump’s America, despite short-term disruptions, builds foundations for sustained prosperity. The combination of tax relief, regulatory freedom, energy abundance, and technological leadership creates compounding advantages.

Europe’s path leads toward continued relative decline. Failed leadership, structural rigidities, and ideological blindness prevent necessary reforms. The EU’s obsession with regulation over growth, redistribution over creation, and virtue signaling over competitiveness dooms it to stagnation.

For investors, the implications are obvious. American assets offer growth, innovation, and dynamism. European investments provide exposure to decline, regulation, and political dysfunction. The choice should be easy.

As Trump often says, “We’re going to win so much, you’re going to get tired of winning.” Based on current economic trajectories, he’s right. America is winning while Europe loses, and that gap will only widen under current leadership on both continents.

The global economy of 2025 isn’t experiencing synchronized weakness but rather divergent destinies. Those who recognize this reality and position accordingly will prosper. Those who cling to outdated assumptions about European sophistication and American decline will pay dearly for their delusions.