Wang Jimin
Wang Jimin
[New Sancai Compilation First Release] Donald Trump’s victory in the next US presidential election will have potentially profound and direct economic consequences for the rest of the world.
If Trump delivers on just a fraction of his promises — from raising trade tariffs to deregulating, increasing oil drilling and demanding more from U.S. NATO partners — the consequences will be felt in every corner of the world, from government finances to inflation to economic Growth and interest rate pressures.
Edison Research predicts that Trump will receive more than 270 Electoral College votes needed to win the presidency on Wednesday and regain the White House.
His Republicans also won seats in the Senate and may even win seats in the House, which would make it easier for the president to legislate his proposals and push through key appointments.
Eric Nielsen, chief economic adviser at UniCredit Bank Group, said: "Trump's fiscal pledges are serious trouble for the U.S. economy and global financial markets, because they promise to significantly expand the already excessive deficit, and he also threatens to To destroy key institutions.”
"One must conclude that Trump poses a serious threat to the U.S. Treasury market and global financial stability, and has so far been greatly underestimated," Nielsen said.
Import tariffs, including a general tariff of 10% on all foreign imports and a 60% tariff on imports from China, are an important part of Trump's policy and are likely to have the largest global impact.
Tariffs stifle global trade, reduce growth for exporters and put pressure on the public finances of all parties involved. They could exacerbate U.S. inflation and force the Federal Reserve to adopt tightening monetary policy.
The International Monetary Fund has characterized global growth as weak, with economic expansion in most countries "weak". A further hit to global trade could pose downside risks to next year's GDP growth forecast of 3.2%.
Companies mostly pass on import costs to customers, so tariffs could lead to inflation for U.S. buyers, forcing the Fed to keep interest rates high for longer or even reverse policy and raise borrowing costs again.
That scenario is more likely if Trump sticks to his spending and tax promises, which could add $7.75 trillion to the U.S. debt by 2035, according to the nonpartisan Committee for a Responsible Federal Budget.
“Universal import tariffs will do the most damage,” said ABN Amro’s Rogier Quaedvlieg. “If eventual implementation is not universal, the hit to the global economy will be significantly less severe.” “Trump’s full package, including universal The package may severely impact the global economy.”
China, Mexico
For emerging markets that rely on U.S. dollar financing, such a policy mix would make borrowing more expensive, creating a double whammy in addition to export losses.
The forces that may be driving up U.S. inflation could also put pressure on prices elsewhere, especially if Trump follows through on his pledge to impose exorbitant tariffs on China.
As the world's largest exporter, China is eager to return to growth, so it may seek new markets for goods being squeezed out of the United States and dump products elsewhere, especially Europe.
As business confidence, especially in open economies that rely on trade, will deteriorate rapidly, central banks are likely to react quickly.
JPMorgan's Greg said: "Even before the survey fell, the ECB was likely to accelerate rate cuts to a neutral rate of 2%, and once U.S. tariff policy becomes clearer, lowering rates below neutral would be reasonable. "
Governments could also retaliate against any U.S. import tariffs, further dampening trade and further weakening global growth.
Higher Fed rates and lower borrowing costs elsewhere will also boost the dollar - as evidenced by the 1.5% depreciation of the euro and yen overnight - causing more pain for emerging markets as more than 60% of international Debt is denominated in U.S. dollars.
Mexico is likely to be hardest hit given Trump's rhetoric about closing the border and the outlook at home has deteriorated.
Harrison added that Mexico is particularly vulnerable because trade tensions and the threat of deportations could exacerbate domestic problems such as cartel activity and the government's failure to curb violence.
Among potential winners, Brazil may enjoy more trade with China because when trade tensions heightened during Trump's first term as president, Beijing replaced all U.S. soybean imports with Brazilian soybeans.
European Defense
But if Trump reduces support for NATO, Europe could also suffer the additional hit of increased defense costs.
The continent has been dependent on the U.S. military presence since the end of World War II, and with no end in sight to Russia's war in Ukraine, Europe will be forced to fill any void left by the U.S. withdrawal.
However, European government debt has reached close to 90% of GDP, so fiscal constraints have made it difficult for governments to finance military spending while stimulating economies suffering from trade obstacles.
Trump's deregulatory efforts are likely to continue for a longer period of time, but the internationally agreed proposals to improve bank resilience, commonly known as Basel III, may be the first casualty.
The new rules will be implemented from January 1, 2025, and policymakers are already discussing whether they should continue even if the United States withdraws.
(Compiled by: Wang Jimin)
(Editor: Jiang Qiming)
(Source of the article: Compiled and published by New Sancai)
