Following the February article “Elections vs. Economy,” which forecasted the global macroeconomic impact of the American presidential elections, I will delve deeper in this article now that Donald Trump’s victory has been confirmed. While world leaders congratulated him, Trump declared on November 6 that he received a “powerful mandate” to govern.
If he implements even part of his promises—namely higher commercial tariffs, potential deregulation, a push for oil drilling, stricter demands on NATO partners, and pressure on government finances—there will be global ripple effects on inflation, economic growth, and interest rates.
Trump’s Republican Party also secured control of the U.S. Senate and House of Representatives, making it easier for the president to legislate his proposals and approve key appointments.
Import tariffs, including a universal 10% tax on imports from all foreign countries and a 60% tariff on imports from China, are central to Trump’s policies and are likely to have the greatest global impact.
These tariffs hinder global trade, reduce growth for exporters, and strain public finances in all parties involved. They are likely to increase inflation in the U.S., prompting the Federal Reserve (FED) to adopt stricter monetary policies.
This inflationary effect will likely spread to other markets as well.
The International Monetary Fund (IMF) has already described global growth as weak, with most nations producing only “subdued” expansion. Further disruption to global trade could threaten their projected GDP growth of 3.2% for the coming year.
Most companies pass import costs onto consumers, making tariffs inflationary for U.S. customers, potentially forcing the FED to maintain high-interest rates for longer or even reverse course and increase borrowing costs again.
As the world’s largest exporter, China, focused on growth, may look for new markets for its goods, particularly targeting Europe as an alternative to declining demand in the U.S.
Central banks are likely to react swiftly, as business sentiment, especially in open, trade-dependent economies, will deteriorate rapidly.
The FED’s high rates and reduced borrowing costs in other markets could further strengthen the U.S. dollar (as evidenced by the 1.5% drop in the euro and yen’s value in the early hours after the election), exacerbating challenges for emerging markets, where over 60% of international debt is denominated in dollars.
Europe may also face rising defense costs if Trump follows through on reducing support for NATO.
With government debt in Europe already nearing 90% of GDP, public finances are stretched thin, and governments will struggle to stimulate economies hit by trade barriers while simultaneously financing increased military spending.
* University Lecturer
Financial Consultant
rui.patricio@singularway.com
