Trump victory to reverberate through global economy

Donald Trump’s dramatic return to the White House could trigger significant economic consequences, not just for the United States but for the entire world. The former president secured the necessary 270 Electoral College votes on Wednesday, surpassing the threshold for a second non-consecutive term. Alongside his personal win, the Republican Party also retained control of the Senate, and may even secure the House of Representatives, consolidating political power and easing the passage of his economic agenda.

Economists are already sounding alarm bells over the potential economic fallout from Trump’s proposed policies, which include raising tariffs, rolling back financial regulations, ramping up fossil fuel production, and demanding greater financial contributions from NATO allies. If enacted, these policies could have far-reaching effects on global trade, inflation, government debt, and economic growth.

Tariffs: a global trade disruption

Among Trump’s most controversial policies are his proposals for sweeping tariffs, including a 10% tax on all imports to the U.S. and a staggering 60% tariff on goods imported from China. These import duties are expected to strain international trade, reduce economic growth, and weigh heavily on public finances across the globe.

Erik Nielsen, Chief Economics Advisor at UniCredit, warned that Trump’s fiscal strategy is highly risky. “Trump’s fiscal pledges are seriously troublesome—both for the U.S. economy and for global financial markets,” he said. “They promise to massively expand an already excessive deficit, while also undermining key institutions that have traditionally supported economic stability.”

The tariffs would likely push up prices in the U.S., as companies pass the increased costs onto consumers. This could force the Federal Reserve to raise interest rates to combat inflation, a move that would send ripples through global financial markets, as rising U.S. borrowing costs typically lead to a stronger dollar. The effects could be especially painful for emerging markets, where borrowing in dollars could become significantly more expensive.

Global growth at risk

The International Monetary Fund (IMF) had already downgraded global growth projections prior to Trump’s victory, citing weak expansion in many economies. The additional pressure from a trade war, particularly with China, could undermine the IMF’s growth forecast of 3.2% for the coming year. If Trump implements his full package of tariffs, the global economy could face an even more severe downturn.

“Firms mostly pass import costs onto the customer, so tariffs are likely to be inflationary for U.S. buyers,” said Rogier Quaedvlieg, economist at ABN Amro. “The full Trump package, including a universal tariff, would likely hit the global economy hard.”

China, as the world’s largest exporter, is expected to be particularly affected. Should Trump escalate trade tensions, Beijing may shift its focus to other markets, particularly in Europe, to offset lost U.S. sales. However, this could lead to price deflation in certain sectors, further exacerbating global economic instability.

Emerging markets in the crossfire

Emerging markets, particularly those reliant on U.S. dollar financing, are bracing for the effects of Trump’s policies. Higher U.S. interest rates, along with reduced trade opportunities, could deal a double blow to these economies. The Mexican peso, already under pressure, fell by 3% against the dollar following Trump’s victory, as concerns over trade relations and potential border closures took hold.

“Mexico is most at risk,” said Jon Harrison, analyst at TS Lombard. “Trade tensions and threats of deportations could exacerbate domestic problems, such as cartel violence and weak governance.” Mexico’s vulnerability is compounded by its economic dependence on the U.S., making it particularly susceptible to disruptions in trade and cross-border relations.

Europe faces increased military costs

In addition to economic disruptions, Europe may also face new financial pressures if Trump follows through on his pledge to reduce U.S. support for NATO. With the ongoing conflict in Ukraine showing no signs of abating, Europe could be forced to pick up the slack, increasing defense spending at a time when its economic recovery remains fragile.

Already burdened with high debt levels—many EU nations’ government debt is close to or exceeds 90% of GDP—Europe may struggle to balance military commitments with economic stimulus efforts. This could further stymie the continent’s economic growth.

Deregulation: the long-term impact

Trump’s commitment to deregulation, particularly in the banking and energy sectors, is another area of concern. While the effects of deregulation may take longer to manifest, they could still undermine global financial stability. Notably, international banking regulations, known as Basel III, could be jeopardized if Trump pulls the U.S. out of the framework, which is set to come into effect in January 2025.

The full consequences of a Trump presidency on the global economy remain uncertain, but one thing is clear: the economic landscape is likely to be significantly altered, with major risks to growth, trade, and financial stability. Policymakers around the world will now be watching closely to see how the new administration follows through on its bold promises—and how the world reacts to them.