December 18

Presidency Be A Disaster For The Global Economy

Presidency Be A Disaster For The Global Economy

The unexpected victory of Donald Trump in the US presidential election is a crucial moment for the global economy. A global market still recovering from the 2008 financial crisis is evident by weak international investment, low commodity prices, low consumer confidence, falling business and consumer confidence, rising household and household debts, and historically low rates of interest.

Trump’s win will not reverse this trend. In fact, his economic policies, if they are implemented, will slow global growth, trade, and investment and could trigger trade and currency wars. Here’s why. Trump’s macroeconomic agenda promises radical reforms. First, trade protectionionism but also changes in immigration policy which will impact the US labor market.

His trade policy seeks reverse decades of liberalization. It begins with a withdrawal of the Trans-Pacific Partnership (TPP), currently before Congress. A renegotiation (or possible withdrawal) from the North American Free Trade Agreement with Canada and Mexico. China is also labeled as a currency manipulator and a 45% tariff on Chinese imports to the US. He also demanded a tariff of 35% on products imported by US companies who outsource production to Mexico.

Trade Economy Protectionism

Global trade and the US economy will be affected by aggressive trade protectionionism. Moody’s Analytics’s modeling suggests that the proposed tariffs on Chinese goods and Mexican goods would raise their prices by 15%, and overall US consumer prices by 3%. This will reduce household disposable income, consumer desire, and domestic economic activity

Trump’s immigration agenda, which includes tightening quotas as well as sending illegal immigrants home to their homelands, would increase inflationary pressures. These policies would reduce labour mobility and potentially lead to shortages on an already tight labour market.

The Fed would tighten its monetary policy to reduce inflation and wage pressures. However, this could have negative consequences on interest rates and housing affordability. This would also impact the ability of American households and businesses to purchase consumer goods and sustain their spending.

International Impacts

Mexico and China would suffer even more, as the US is their largest trading partner. China would see its exports drop, which would further exacerbate already steep declines in export volumes caused by the slow global economy. China’s exports were down 7.3% even before Trump’s election. This leaves Beijing dependent on domestic growth for economic activity.

A further drop in Chinese exports could lead to a contraction of Chinese economic activity, which could have severe consequences, including a global recession, as volatility, economic uncertainty, and trade volumes fall, and investor confidence declines.

The Chinese authorities would have difficulty managing the economic downturn, given the large increase in debts to the public and private sectors. In a context where the export sector is still an important source for employment, there are concerns about political stability.

Mexico would also adversely affect. Mexico’s exports to America are more valuable than those of its 15 closest trading partners. The US’s retrenchment could have a negative impact on Mexican businesses, reduce profits and possibly lead to a recession. This would also have negative consequences for Latin American countries exporting to Mexico.

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Posted December 18, 2021 by penulis in category "Uncategorized