Trump 2.0 and the global economy

In her most recent interview with Sirius XM Business Briefing host Janet Alvarez, London Business School's Dr Linda Yueh spoke about the recent Trump election win and what it might mean for the global economy.

Alvarez described the impact of Trump's election win as sending a "shockwave" around the world, and asked Dr Yueh what she considered would be the impact on the global economy.

It is supposed that the Trump administration could significantly harm global growth based on the supposition that large tariffs will be imposed on imports from China, Mexico, and the eurozone. Alvarez. asked about the IMF's latest forecasts based on the likely impact of stiff tariffs imposed by Trump's government. How seriously are they being taken by economists and world leaders, and how did Dr Yueh feel about the prospects of Donald Trump in office?

Based on these speculations, the IMF estimates that global growth could fall by 0.8 per cent next year, and 1.3 per cent in 2026 said Dr Yueh.

"To give this some context, that would take off about a third of global growth if this were the case. But the thing to stress is this is the worst-case scenario and it is based on the anticipation that the Trump administration will indeed impose severe tariffs," said Dr Yueh.

Negotiations and subsequent rethinking of positions may alter the course of these events said Yueh, adding that it was useful from an "economist's perspective" to understand what the potential downsides might be given a worst-case scenario.

"Certainly there will remain a period of uncertainty until the Trump administration comes into office."

Dr Yueh said that global growth would certainly be impacted by the imposition of large tariffs. "Presently global trade is working fairly well and despite prior warnings of the imposition of tariffs by a Trump government, this has not dented growth significantly. But this could all change next year if there is an across-the-broad imposition of tariffs."

Alvarez acknowledged that the Trump administration would likely not be immune to the warnings of the IMF, and was there any reason to believe that tariffs might not be imposed, adding the caution that Trump's cabinet are a "high conviction administration".

Dr Yueh said that as an example of just one measure, even a 10 to 20 per cent tariff imposition across the board on European economies would have a substantial impact on the global economy.

"Looking at the last Trump administration, he talked in a similar fashion about tariffs, and he did impose some of them, but not all of them. That said, I think that the premise of wanting to reduce the US trade deficit is a high conviction position. We saw that in Trump 1.0 and we will see this in Trump 2.0."

Dr Yueh said that the eurozone was particularly worried about tariffs because one fifth, or 20 per cent of all of its exports, go to the US, giving the example of the possible impact on German car exports to the US.

Ireland, home to many regional headquarters for a number of large companies, also relies on low tariff trade to the US. And in the UK, financial analysts think that if Trump imposes a 10 per tariff across Europe, UK’s growth would be cut from 1.6 to 1.4 per cent,

What would be the likely impact on the Chinese economy? While other tariffs might be in doubt, Dr Yueh said that that a large tariff - "60 per cent, or perhaps more" - is much more likely when one focuses attention on China.

"The impact [of such a tariff] would be staggering. Analysts say that it could cut Chinese growth in half. With China's economy currently struggling to grow at five per cent, its GDP would be cut significantly."

There is also a likelihood that Trump would seek to to impose large tariffs on China's so-called 'connected countries', such as Vietnam and Mexico. Historically China has managed to get around the Biden administration's tariffs by selling into the US market via these countries."

Dr Yueh said that China is so concerned about this situation that it has recently announced a "massive fiscal stimulus".

To listen to the full interview, click here