Donald Trump’s likely re-election as president of the United States has thrust the global economy into a state of uncertainty.
As Election Day wound down on Tuesday, the former president stood on the cusp of victory, with 267 Electoral College votes, while his Democratic opponent Kamala Harris appeared to have no realistic pathway left to reach the 270 mark that represents a majority, even though the Associated Press had not called the election. Harris hs not conceded yet, though Trump claimed victory.
A win for Trump would be a hammer blow to the decades-old project of globalisation, which was already under strain amid a growing consensus on both the left and right that the free movement of goods and people has failed ordinary people.
Trump’s proposals to impose tariffs of at least 60 percent on Chinese imports and tariffs of 10-20 percent on all other foreign goods would raise duties to levels not seen since the Great Depression.
While Trump slapped tariffs on $380bn of US imports during his first trade war with China, his proposals this time around would cover goods worth 10 times that amount.
Global economic growth would almost certainly take a hit as consumers in the world’s largest economy cut back on purchases of foreign products, particularly if, as is likely, countries imposed retaliatory tariffs on US imports.
Swiss bank UBS has estimated that a 60 percent tariff on Chinese goods and a 10 percent universal tariff would reduce global economic growth by one percentage point in 2026.
A study by analysts at the London School of Economics and Political Science has predicted a 0.68 percent reduction in China’s gross domestic product (GDP) and a 0.11 percent reduction in the European Union’s GDP.
India, Indonesia and Brazil, meanwhile, would see GDP losses of 0.03 percent, 0.06 percent and 0.07 percent, respectively, according to the study.
Given Trump’s reputation for unpredictability and policy-making on the fly, however, it is difficult to predict how far he might actually go with tariffs once in office.
The Republican has made no secret of his enthusiasm for protectionist policies.
During his campaign, he declared “tariff” his favourite word and the “most beautiful word in the dictionary”, and cited the protectionist policies of former President William McKinley, who governed from 1897 to 1901, as an inspiration.
In September, Trump took the usual step of threatening an individual company, the agricultural manufacturer John Deere, with a 200 percent tariff if it moved production to Mexico.
Last month, he pledged to keep Chinese cars made in Mexico out of the US, saying he would impose “whatever tariffs are required – 100 percent, 200 percent, 1,000 percent”.
“There are those among Trump supporters, according to press reports, who say that the tariffs are mainly a negotiating ploy. But that is not what the former president is saying,” Alan Wm Wolff, a researcher at the Washington, DC-based Peterson Institute for International Economics, said in an analysis published last month.
“If we are to take Trump at his word, there is no telling what tariffs there will be.”
Trump’s economic plans threaten to harm emerging economies in other ways, too.
The US dollar is likely to strengthen as higher inflation due to tariffs prompts the Federal Reserve to raise interest rates.
When the dollar rises, other countries see their currencies depreciate, raising the cost of imports.
A stronger dollar also makes it more burdensome for governments to repay their dollar-denominated debt.
Trump’s challenges to the independence of the Federal Reserve, whose decisions on interest rates reverberate globally, have also raised alarm.
Politicising the central bank would risk undermining the credibility of the dollar and US bonds, with potentially catastrophic consequences for global financial stability.
“If financial markets believe the Fed’s independence is compromised – or could become so – under Trump, it will have significant ramifications,” The Financial Times warned in an editorial earlier this year.
“Inflation expectations could de-anchor, particularly given Trump’s plans to cut taxes and raise tariffs. This would add upward pressure to US Treasury bond yields. America’s debt ratio is on an unsustainable path as it is.”
