Investing in Inflation Resilience: How Trump's Economic Policies and Public Dissent Are Reshaping Risk Exposure

The U.S. economy in 2025 is navigating a complex web of inflationary pressures, policy shifts, and public discontent. At the center of this turbulence is Donald Trump's second-term agenda, which blends tariffs, deregulation, and immigration crackdowns with a new "affordability" pivot. For investors, the challenge lies in parsing how these policies-and the growing public backlash against them-are reshaping risk exposure and asset allocation strategies.

Tariffs, Deregulation, and the Inflationary Tightrope

Trump's economic playbook remains rooted in protectionism and deregulation. Tariffs on imports, now ranging from 10% to 60%, are expected to elevate inflation by 0.3 percentage points in the core PCE index by 2026, according to analysts at Russell Investments. These tariffs, while designed to shield domestic industries, come with trade-offs: higher consumer prices, disrupted supply chains, and retaliatory measures from trade partners. Yet, the U.S. economy has shown surprising resilience, partly due to the AI-driven productivity boom, which has offset some of the drag from inflation.

Deregulation in energy and financial services is another cornerstone of Trump's agenda. While this reduces compliance costs and could spur investment, it also raises red flags about environmental risks and financial stability according to Pinebridge analysts. For investors, the key question is whether these policies will create a "stagflationary" environment-where growth slows but inflation persists-or if the AI-driven productivity surge will decouple growth from traditional inflationary forces.

Public Dissent and the Human Cost of Policy

Public dissent has become a defining feature of Trump's second term. Immigration enforcement, including detentions of students and researchers, has drawn legal challenges and political pushback, with civil rights groups arguing these actions are unconstitutional according to the House of Representatives tracker. Meanwhile, the administration's 50-year mortgage proposal-a bid to lower monthly housing costs-has been criticized for inflating long-term interest burdens. On a $400,000 home, total interest over 50 years would exceed $800,000, compared to $438,000 for a 30-year mortgage.

Healthcare and consumer goods inflation have further fueled discontent. Food prices, including staples like coffee and ground beef, continue to rise, while healthcare premiums and out-of-pocket costs strain households. Public sentiment reflects this frustration: 53% of Americans believe Trump's policies have harmed the economy, and 52% rate his inflation management as below average according to Yahoo Finance data.

Asset Allocation in a Shifting Landscape

The interplay of policy and public sentiment is forcing investors to rethink their strategies. Here's how key asset classes are being reshaped:

1. Equities and Real Assets:
2. Energy and Metals: As AI and power generation drive demand for industrial metals, equities tied to real assets-such as energy and mining-are gaining traction as inflation hedges according to Trowe Price.

3. Growth vs. Value: U.S. growth stocks, particularly those linked to AI, may benefit from tax cuts and deregulation. However, small-caps face headwinds due to their sensitivity to interest rates and inflation according to JPMorgan analysis. International value stocks, especially in regions with accommodative monetary policies, could offer relative opportunities according to Trowe Price.

4. Fixed Income:

5. Short-Duration Bonds: With inflation risks persisting, investors are favoring shorter-duration bonds and Treasury Inflation-Protected Securities (TIPS) to mitigate interest rate volatility according to Trowe Price.

6. Treasury Yields: Trump's fiscal stimulus, including extended tax cuts and deficit spending, is likely to push Treasury yields higher, making longer-duration bonds less attractive according to JPMorgan analysis.

7. Commodities:

8. Gold and Agriculture: These sectors are emerging as critical hedges against trade conflicts and immigration-driven supply chain disruptions according to Invesco research.

9. Geopolitical Exposure:

10. Retaliatory tariffs from trade partners could further complicate global supply chains, making international diversification a priority for risk management.

The Affordability Agenda: A Political and Economic Gamble

Trump's "Make America Affordable Again" message includes $2,000 tariff rebate checks, a policy aimed at redistributing revenue from import tariffs to households. However, economists warn that such rebates could inject liquidity into an already inflationary economy, potentially worsening price pressures. The administration's reliance on tariffs as a funding mechanism also introduces uncertainty, as trade negotiations or policy reversals could leave the program underfunded.

For investors, the affordability agenda underscores the tension between short-term political gains and long-term economic stability. While demand-side measures like rebates may boost voter support, they do little to address structural issues like housing shortages or healthcare cost inflation according to Progressive Policy analysis.

Conclusion: Navigating the New Normal

The 2025 U.S. economy is a study in contradictions: AI-driven growth coexists with stubborn inflation, and protectionist policies clash with global supply chain realities. For investors, the path forward lies in balancing exposure to inflation hedges-such as real assets and commodities-with strategic diversification across geographies and sectors. Public dissent, meanwhile, serves as a reminder that policy outcomes are never certain; what matters most is the ability to adapt to a rapidly shifting landscape.

As the affordability crisis deepens and political polarization intensifies, the key to resilience will be agility. Investors who prioritize flexibility-whether through short-duration bonds, international value stocks, or real asset allocations-will be best positioned to weather the storms ahead.