Impact of a possible Trump victory on global economy: As the closely contested US presidential election approaches, the prospect of Donald Trump’s return to the White House raises questions about the future of the world economy. With Trump promising sweeping changes to US trade and economic policy, a win could mean a more protectionist, America-first agenda. This approach, as demonstrated during Trump’s first term, could disrupt the world economy and reshape global trade dynamics.
Trump’s promise of universal tariffs on imports reflects a renewed commitment to protectionism. During his first term, he imposed tariffs on steel, aluminium, and a wide range of Chinese goods, aiming to reduce the US trade deficit and revive domestic manufacturing. The results were mixed, with retaliatory tariffs from trading partners, such as China, ultimately causing more harm than anticipated to certain sectors of the US economy. Studies estimated that up to 250,000 jobs were lost and that US manufacturing employment fell by 1.4% due to these tariffs.
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Should Trump impose a sweeping 10% tariff on all imports and an additional 60% tariff on Chinese goods, we could see even larger disruptions. Such policies could trigger retaliatory actions from trade partners, leading to a new cycle of trade wars that may reduce global trade volumes and increase costs for consumers worldwide. Such policies could fuel US inflation, potentially reaching between 6% and 9% by 2026, compared with the current trajectory toward 1.9%. This inflationary pressure may reduce purchasing power and dampen consumer spending in both the US and abroad, creating ripple effects across the global economy.
Weakening of global institutions
Under Trump’s previous administration, global institutions like the World Trade Organisation (WTO), the International Monetary Fund (IMF), and the World Bank faced significant challenges. Trump’s decision not to appoint members to the WTO’s appeals panel stalled the organisation’s dispute settlement system, essentially leaving it inoperative. His current campaign rhetoric suggests an even more radical stance, with the Project 2025 policy document proposing the US withdraw from both the IMF and World Bank.
The potential withdrawal of the US would profoundly impact developing nations that rely on these institutions for economic stability and development financing. IMF head Kristalina Georgieva recently warned about the threat of rising protectionism to global growth, noting that trade is no longer the engine of growth it once was. Should the US withdraw its support, countries facing economic challenges would lose a major contributor to the global financial safety net, weakening the IMF and World Bank’s ability to respond to crises effectively.
Energy policies and their economic impact
Energy is another sector where a Trump presidency could reshape global markets. Trump has vowed to lower US energy costs by prioritising fossil fuels, promoting deregulation, and increasing oil and gas drilling. While this policy may temporarily reduce energy prices in the US, it could complicate global efforts to transition to renewable energy, particularly for countries committed to reducing carbon emissions.
Moreover, Trump’s approach to energy independence could influence oil prices. By increasing US oil production, his administration could flood the market, pushing prices down. This shift could provide temporary relief to oil-importing nations but harm oil-exporting countries, which rely on stable prices for economic growth. If trade policies simultaneously slow global growth, energy demand could further drop, putting additional pressure on oil prices and harming economies dependent on oil exports, especially in the Middle East and Africa.
Strengthening the dollar and inflation
Ironically, Trump’s efforts to weaken the dollar through tariffs could yield the opposite effect. Higher tariffs would likely lead to increased inflation, prompting the Federal Reserve to raise interest rates. Higher US interest rates generally strengthen the dollar as investors seek returns in the US markets. A stronger dollar could undermine Trump’s aim to boost exports, as US goods would become more expensive for foreign buyers, potentially worsening the trade deficit. Additionally, a stronger dollar may harm emerging markets, as they face higher debt servicing costs on dollar-denominated loans, reducing their financial stability and growth prospects.
The US technology sector could also feel the impact of Trump’s trade policies. His hands-off approach to tech regulation could appeal to some companies, yet ongoing trade tensions with countries like China may harm US tech firms with international supply chains. New tariffs would increase operational costs, potentially reducing profit margins and discouraging investment in innovative technologies. Many technology companies rely on global suppliers and markets, meaning a restriction on Chinese imports or increased production costs would likely hurt their international competitiveness and impact their share prices.
For countries in Asia, particularly those deeply integrated into US-China supply chains, this disruption could lead to realignment. Manufacturing hubs might seek closer ties with other global powers, like the European Union, which has maintained a more collaborative approach to trade. However, this shift would take time and investment, leaving immediate gaps in supply chains and economic output.
Trump victory and the future of US alliances
On the geopolitical front, Trump’s focus on economic nationalism has raised questions about the future of alliances like NATO. His administration has previously criticised NATO’s funding mechanisms and threatened to withdraw. His running mate, J.D. Vance, echoed similar sentiments, suggesting that NATO membership could be contingent on European countries aligning their regulations with U.S. interests, particularly in tech regulation.
This stance could destabilise the current Western alliance structure, weakening NATO and giving more leeway to nations like Russia and China to expand their influence. Additionally, Trump’s proposed policies on immigration and trade could strain U.S. relations with neighbouring countries, particularly Canada and Mexico, which rely heavily on trade agreements like the USMCA for economic integration with the U.S.
The way ahead for the global economy
The global economic impact of a Trump administration would likely be marked by heightened uncertainty and increased isolationism. Trump’s proposed policies on tariffs, energy, and alliances reflect a departure from multilateral cooperation, which has been a cornerstone of post-World War II economic stability. Developing nations may feel the brunt of this shift as the U.S. reduces its engagement with international institutions, further isolating economies in need of support.
Global markets could face volatility as businesses and investors adjust to a more unpredictable U.S. trade policy. Countries that depend heavily on trade with the U.S. might be compelled to rethink their economic strategies, potentially diversifying their alliances or increasing domestic production to shield against trade shocks.
A Trump victory in 2024 would likely usher in an era of intensified protectionism, renewed trade wars, and increased pressure on global institutions. While Trump’s policies may resonate with voters seeking a more self-reliant America, they could amplify inflation, complicate international supply chains, and isolate the U.S. from global financial institutions. This approach may ultimately undermine both global economic growth and the stability of an increasingly interconnected world economy.
The road ahead may demand that countries, businesses, and investors remain adaptable, finding new pathways to growth amid shifting trade landscapes and geopolitical alliances. The stakes of this election are undeniably high, not just for the United States but for the world economy at large.