Donald Trump was elected as the 45th President of the United States on November 8, 2016, and is said to 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 policies to run the government. , which have generated curiosity among global investors. Experts suggest that these policies can be costly, and not just for the United States but for the global economy as a whole. More importantly, the world trade landscape is expected to change dramatically under his leadership. However, at the national level, their policies may boost Global, at least in the short term.
Donald Trump will occupy the US presidential office only in early 2017, so the current and short-term market reaction stems primarily from anticipation and expected policy changes. Once in office, he plans to apply expansionary fiscal policies (increasing spending, especially on defense and infrastructure), loosening debt limits, and drastically slashing taxes (mainly benefiting larger corporations). This fiscal stimulus could well boost economic growth in the US at least in the short term, along with inflation. However, as tax revenues decline and spending increases, budget deficits for the government are expected to increase unless such reforms result in higher tax collections. This will act as a bottleneck for growth and employment in the US and will increase inflation substantially as the economy hits the full employment mark.
Various policies proposed by Trump have various complications for economies around the world. From completely undermining the importance of addressing climate change or global warming to spreading xenophobia, the most surprising thing, however, remains its protectionist agenda towards global trade.
His motives for imposing tariffs on US imports from emerging economies, particularly China and Mexico, and labeling China as a currency manipulator could have a negative impact on world trade. Most importantly, his stance on America’s withdrawal from the Trans-Pacific Partnership (TPP) signals a move toward “anti-globalization.” These factors, combined with his comments about “breaking trade agreements” and measures to expel immigrant workers, pose an immense threat of a global trade war, which could easily lead to a global recession.
The Trans-Pacific Partnership (TPP), which culminated in late 2015 after years of negotiations between the trade heads of 12 nations along the Pacific coast, excluding China, aims to address trade issues between the nations involved. This agreement is planned to eliminate more than 18,000 trade barriers between member nations, making it the largest Free Trade Agreement (FTA) in the United States by trade flows. Any change to this agreement could lead other nations to retaliate with higher tariffs or introduce more trade barriers.
Michael Gapen, Barclays chief US economist, suggests that these policies, if implemented, could put a 0.5-1% drag on US economic growth over the next year. For the global economy, if these “anti-globalization” trade patterns are followed by other nations, it could further increase the downside risk of trade and currency wars, and eventually global recession. The first half of 2017 will be crucial and the entire world will be watching the United States and, in particular, Donald Trump for his next moves.