Trump’s Economic policies Face Reality Check: Fidelity Warns of Risks to 2026 Election and Global Economy
January 9, 2026 – A recent analysis by Fidelity, the global investment giant, casts a critical eye on the economic implications of Donald Trump’s policies, particularly his renewed push for tariffs. The firm’s Director of Market Strategy for Continental Europe, Donatella Principe, argues that the current narrative surrounding Trump’s economic agenda doesn’t align with the unfolding reality, and could significantly impact his chances in the upcoming 2026 midterm elections.The core concern? Trump’s signature 2025 policy – the imposition of tariffs – is demonstrably harming his base of voters, producing the opposite effect of what was intended.
Principe’s assessment, delivered at a perspectives event in Madrid, highlights a growing disconnect between the President’s rhetoric and the tangible economic consequences of his trade policies. Rather than bolstering American industry and creating jobs, the tariffs are contributing to a weakening dollar and rising inflation, disproportionately affecting lower-income Americans – a key demographic for trump’s political support.
The Unintended Consequences of Tariffs
the central argument presented by Principe centers on the detrimental impact of tariffs on the U.S. economy. While framed as a means to protect domestic industries, the tariffs are, in effect, acting as a tax on American consumers and businesses. This is manifesting in several key ways:
* Dollar Depreciation: According to analysis cited by El Economista, the implementation of tariffs has coincided with a decline in the value of the dollar. This weakens purchasing power for Americans and makes imports more expensive.
* Rising Inflation: The tariffs are driving up the cost of imported goods, contributing to inflationary pressures within the U.S. economy. This directly impacts the cost of living for everyday Americans, eroding their disposable income. Notably, the current inflationary trend is reversing the pattern seen in early 2023, where goods inflation was declining while service inflation remained stable. Now, goods inflation is increasing while service inflation is falling – a direct contradiction of Trump’s economic narrative.
* Impact on Trump’s Base: The burden of these economic consequences falls heaviest on lower-income households, the very demographic that forms the core of Trump’s support. This creates a paradoxical situation where the President’s policies are actively harming the people who benefit most from his promises of economic prosperity.
“The trade war matters,” Principe emphasized. “Trump has raised tariffs to levels not seen since 1929, but the weight of global trade within GDP is now much higher.” In 1928, global trade represented just 20% of global GDP; by 1972, it had risen to 25%. Today, it stands at a substantial 60%, meaning the impact of trade policies is far more significant than in previous eras.
Political Implications and the 2026 Midterms
The economic fallout from Trump’s policies has significant political implications, particularly as the 2026 midterm elections approach. Principe argues that the current trajectory poses a serious threat to Trump’s power.
* Voter Concerns: while public attention may have waned since the initial implementation of the tariffs,the economic pain is becoming increasingly palpable. According to Fidelity’s research, the top concerns for American voters are the economy and employment (27%) and inflation (21%).
* Diminishing Approval: A significant 75% of Americans believe Trump’s measures to lower prices are “insufficient,” with only 5% viewing them as “excessive” and 20% as “adequate.” This indicates a growing dissatisfaction with the President’s economic policies.
* Loss of Congressional Control: Principe warns that losing control of either the house or Senate in the 2026 midterms would severely curtail Trump’s ability to implement his agenda. “If he loses one of the two chambers, Trump loses power,” she stated.
The Fed’s Dilemma
The situation also presents a challenge for the Federal Reserve (the Fed). Trump has repeatedly pressured the Fed to lower interest rates to stimulate the economy and reduce the cost of government borrowing. However, the tariffs are creating a “supply shock” that complicates the Fed’s dual mandate of maintaining stable prices and full employment.
“The problem for the Fed is that having a supply shock is the worst thing for both of its mandates,” Principe explained. the tariffs are concurrently contributing to rising inflation and potentially slowing economic growth, making it tough for the Fed to navigate a stable monetary policy. Inflation has already risen from 2.3% to 2.7%, signaling a trend in the wrong direction.
A Policy Backfiring
Ultimately, Fidelity’s analysis suggests that Trump’s trade policies are backfiring. While the President might potentially be achieving some successes on the international stage, these gains are being overshadowed by the negative economic consequences at home. The core issue is that the benefits of any potential foreign policy wins are unlikely to resonate with voters if thay are struggling with rising prices and economic uncertainty.
As Principe succinctly put it,“Even if the Republican achieves great successes with his foreign policy,the American citizen won’t care so much if what they see inside their borders is an increase in unemployment and an inability to reverse the loss of purchasing power.”
Key Takeaways:
* Tariffs are harming the US economy: they are contributing to a weaker dollar, higher inflation, and economic hardship for American consumers.
* Trump’s base is suffering: The economic pain is disproportionately affecting lower-income americans, a key demographic for the President.
* The 2026 midterms are at risk: Voter dissatisfaction with the economy could lead to a loss of congressional control for Trump.
* The Fed faces a difficult challenge: The tariffs are complicating the Fed’s efforts to maintain stable prices and full employment.