Nouriel Roubini

Will the US experience a soft landing or a hard landing or no landing? Which Trump policies lead to higher growth and lower inflation and which are instead stagflationary (lower growth and higher inflation)? Will US policies help a global recovery or hamper it via protectionism and unsustainable deficits?

Radical protectionist or “escalate to de-escalate” (threatening tariff to extract concessions on matters that the US cares about? If the latter, will trade partner negotiate such concessions (and which ones) or start trade wars? Does Trump want a stronger dollar to maintain the global reserve currency status of the US dollar or a weaker dollar to restore competitiveness and reduce the US trade deficits. Trade and currency policies cannot achieve at the same time a weaker dollar, a reduction in the trade deficit, keep inflation under control, raise revenues via tariffs and keep the US dollar as the major global reserve currency. So, which one of such goals will be priorities and how will conflicting goals be traded off against each other?

Making the tax cuts expiring in 2025 together with other electoral promises would increase the public debt by about $8 trillion over the next decade and lead to fiscal deficit of over $2 trillion a year for the next decade. In that case bond market vigilantes could wake up and push bond yields much higher thus crowding out economic growth; in an extreme case a debt crisis may even emerge even if the dollar role as the global reserve currency reduces that risk for the time being. A way to make US deficits and debts more sustainable is to contain unsustainable tax cuts, reduce excessive spending and reform the entitlements – such as unfunded pension expenses and rising health care costs. But such policies of fiscal austerity are politically unpopular. So, what will give in? Is a fiscal train wreck avoidable and how? And what are the global consequences of unsustainable fiscal deficits and debt accumulation?

The answer depends on the outlook for growth and inflation in the US and the behavior of long bond yields that are affected by fiscal deficits and debt. It also depends on how sustainable is the current AI boom: is it partly hyped and bound to disappoint and deflate or persistent and likely to turbo-charging future growth?

Stronger US growth could help a global recovery that has been weak in Europe, China and Asia. But tariffs and protectionism would be a deflationary shock on the rest of the world: they would reduce demand and lead to lower growth and inflation at a time when the rest of the world has limited macro policy space and structural reforms to increase growth are occurring too slowly?

US trade policies will be increasingly protectionist but such trend toward de-globalization is spreading worldwide. Will US tariffs lead to trade wars or engagement in dialogue to diffuse trade tensions? What will be the migration policies of the US: radical deportation or a more rational reform of the migration system? Are US and China headed to de-risking or a broader de-coupling? How will US allies react who are geo-politically close to the US but also doing a lot of trade and investment with China? Where will the Global South go? Will the WTO be effectively gutted? Are more regional trade agreements the way of the future?

What if the future of financial services. New Fin Tech firms are successfully disrupting traditional financial firms in payment systems, credit allocation, insurance, capital market activities and asset management. Digital assets such as cryptocurrencies aren’t really currencies even if they have been recently experienced asset appreciation. Will countries successfully introduce Central Bank Digital Currencies? Will the future of financial services be partially based on decentralized blockchain technologies or centralized models based on AI and machine learning? How will geo-politics influence the future of money and finance?

US and China are aggressively competing with each other in economic, trade, financial and geo- political spheres? Can competition and confrontation be contained and cooperation on provision of global public goods increased? Will the two countries de-risk or de-couple their relationship? What stresses will this rivalry impose on other friends and allies?

The recent slowdown of growth of China looks structural rather than cyclical. Thus, macro stimulus alone will not be sufficient to boost growth and avoid deflation? What is the risk of Japanification, a long period of secular stagnation? Will Xi care about growth sufficiently – compared to security – to accelerate structural reforms required to restore strong growth? How does China stack up relative to the US in the key technologies and industries of the future?

The slow growth of the European Union and the Eurozone is driven by structural rather than cyclical factors. Europe needs more integration with a more complete and competitive single market; but the politics of member states resists such integration given the rise of populists and nationalist regimes. In the past Europe has integrated more only after crisis. Will a Trump shock lead to more union or a process of dis-integration? Which reforms are needed to boost innovation, competitiveness and growth?

We live in times of old and new economic, monetary and financial threats, including build ups of excessive private and public debts and the risk of stagflationary shocks and policies. But in addition to such economic threats, we face new threats that are social, political, geopolitical, environmental, health, demographic and technological. Economic and non-economic threats feed on each other. Can these megathreats be addressed with better policies, stronger leaders and the benefits of technology leading to a new era of peace, progress and prosperity? Or will they feed on each other in a negative feedback loop that will lead to a more dystopian future.

What will be the economic impact of AI? A much higher productivity growth and welfare or a more modest impact? Will it lead to jobs complementary (i.e. new and more productive jobs of the future) or jobs replacement (i.e. permanent technological unemployment and increased inequality). In the latter case is Universal Basic Income a realistic solution? Which will be the winners and losers from AI, both within countries and across countries? Are blue collar or white collar jobs more at threat given AI, robotics and automation and over which horizon? Which are the appropriate regulations of AI that minimize its many potential risks?

Mitigation, adaptation or geo-engineering? Mitigation– i.e. getting to net zero – is currently not compatible with positive economic growth. Adaptation to climate change is too costly; and geo-engineering solutions are for now experimental and possible subjects to negative side effects. And how can cooperation on such policies be achieved globally in a world of rivalries and a new US administration skeptical of de-carbonization and a green transition. How to reduce greenwishing and greenwashing? Are there new energy technologies – beyond the green ones that offer hope? An example being energy fusion.

There is currently a strong political backlash against liberal democracy and democratic capitalism. It is
driven both by rising economic inequality and economic insecurity. Its political manifestation is the rise to power of populist regimes of the extreme right or left. A new growth model that is politically acceptable needs to be stable (reducing the risk of major financial crises and economic insecurity), inclusive (and thus reduce income and wealth inequalities) and sustainable (and thus address the global climate change crisis). Is this new growth model possible and viable? What will it take to achieve it?