Donald Trump and the global economy

Donald Trump was elected as the 45th President of the USA on November 8, 2016 and it is stated that he will take office as President of the United States on January 20, 2016. The newly elected President of the USA ., 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 US but for the global economy as a whole. More importantly, the world trade scenario is expected to change drastically under his leadership. Domestically, however, his policies may boost Global, at least in the short term.

Donald Trump will only take office in the US in early 2017, so the current and short-term market reaction comes mainly from anticipation and expected policy changes. Once in office, he plans to pursue expansionary fiscal policies (increasing spending, especially on defense and infrastructure), relax debt limits, and slash taxes (mainly to the benefit of the largest 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 rises, government budget deficits are expected to rise, unless such reforms result in higher tax collections. This will act as a bottleneck for growth and employment in the US and will substantially increase inflation as the economy reaches the full employment mark.

Various policies proposed by Trump have various complications for economies around the world. From completely undermining the importance of tackling climate change or global warming to spreading xenophobia, the most surprising thing, however, remains his protectionist agenda towards world trade.

His motives for imposing tariffs on US imports from emerging economies, particularly China and Mexico, and labeling China a currency manipulator could have a negative impact on world trade. More importantly, his stance on US withdrawal from the Trans-Pacific Partnership (TPP) signals a move toward “anti-globalization.” These factors, combined with his comments about “tearing up trade deals” and moves to kick out 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 leaders of 12 nations along the Pacific rim except China, aims to address trade issues between the nations involved. This agreement is planned to remove more than 18,000 trade barriers between member nations, making it the largest US Free Trade Agreement (FTA) by trade flows. Any changes to this agreement could lead other nations to retaliate with higher tariffs or introduce more trade barriers.

Michael Gapen, chief US economist at Barclays, suggests that these policies, if carried out, could cause a 0.5% to 1% drag on US economic growth over the next year. For the world economy, if other nations follow these “anti-globalization” trade patterns, it could further increase the downside risk of trade and currency wars and eventually a global recession. The first half of the year 2017 will be crucial, and the whole world will be watching the US and, in particular, Donald Trump for the next moves of him.

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