Donald Trump and the Global Economy

Donald Trump was elected the 45th President of the United States on November 8, 2016 and announces that he will take office as President of the United States on January 20, 2016. The newly elected President of the United States Donald Trump has proposed many new government policies that have aroused interest among global investors. Experts believe that this policy may prove costly not only to the US but also to the overall global economy. Most importantly, the global trade scenario is expected to change dramatically under his leadership. Domestically, however, his policies could push Global, at least in the short term.

Donald Trump will hold the presidency of the United States only in early 2017, so the current and immediate reaction of the market is mainly due to expectations and expected policy changes. After taking office, he plans to pursue an expansionary fiscal policy (increasing spending, especially on defense and infrastructure), easing debt restrictions and cutting taxes sharply (primarily in favor of large corporations). This financial stimulus could stimulate economic growth in the U.S., at least in the short term, along with inflation. However, as taxes flow and spending increases, the government’s budget deficit is expected to increase unless such reforms lead to increased tax collection. This will be a bottleneck for growth and employment in the US and will significantly increase inflation as the economy reaches full employment estimates.

Several policies proposed by Trump have different complications for the world’s economies. From completely undermining the importance of combating climate change or global warming to the spread of xenophobia, the most impressive, however, remains its protectionist agenda towards global trade.

His motives to put tariffs on U.S. imports from emerging economies, particularly China and Mexico, and to call China a currency manipulator could negatively affect world trade. Most importantly, his position on the US withdrawal from the Trans-Pacific Partnership (CHP) signals a transition to “anti-globalization”. These factors, combined with his remarks regarding the “rupture of trade deals” and measures to deport immigrant workers, pose a huge threat of a world trade war that could easily lead to a global recession.

The Trans-Pacific Partnership (TPP), which culminated in late 2015 after years of negotiations by trade leaders of 12 countries along the Pacific region, with the exception of China, aims to address trade issues among the states involved. The agreement plans to reduce more than 18,000 trade barriers between member states by making the largest U.S. free trade agreement (FTA) on trade flows. Any changes to this agreement could force other states to retaliate with higher tariffs or impose more trade barriers.

Michael Gappen, the chief U.S. economist at Barclays, believes that if this policy is pursued, it could delay economic growth in the U.S. by 0.5% to 1% over the next year. For the world economy, if these trade patterns of “anti-globalization” are followed by other states, it could further increase the risk of reduced trade and currency wars and, ultimately, a global recession. The first half of 2017 will be crucial, and the whole world will be watching the US and, in particular, Donald Trump for his next steps.