The global impact of the US election

The US is the world’s largest economy, and the next US administration’s influence will be felt well beyond the country’s borders – so how is the global impact community getting ready for Trump 2.0?

This was the topic for the most recent London Business School Think Ahead event, Ripple effects: The global economic impact of the US election in which Professor Richard Portes, Dr Linda Yueh, and Dr Joseba Martinez were joined by Eshe Nelson, who covers economics and business news for The New York Times, attempted to fathom the impacts of the coming Trump administration.

Discussion moderator Eshe asked the panel what they thought had been the lasting impact of the first Trump administration. The consensus was that the history books had yet to be written on the subject.

The legacy of Trump 1.0

Joseba thought the main effect of the first Trump presidency was that in the future it may be deemed that this was the point in time when the post-war economic and governmental structures, principally the Bretton Woods system, had been severed.

Linda said in her book The Great Economists, written near the end of Trump’s first presidency, she had captured what she thought to be one important facet of Trump’s time in office. “There was a lot more volatility. We’re used to a certain pace of policy making and we’re used to new policies being trailed before being announced, and so the management of policy management changed during Trump’s first presidency,” said Linda.

Trump 1.0 proved that one cannot fight the laws of economics added Richard. “You can't fight the simple laws of economics. If you try to cut back on imports with tariffs you find that it doesn’t work. Trade deficits are a macroeconomic issue and one can have tariffs on China and elsewhere while seeing imports from other countries going up.”

Cutting taxes in the way that the first Trump administration did also broke those immutable laws, producing unwelcome consequences. "If you cut taxes, you get a big government deficit and you don’t get the stimulus effect that the Trump government boasted.”

Trade policy and tariffs in the era of Trump 2.0

With the prospect of a 60 percent tariff applied to Chinese goods and services and a range of between 10-20 percent applied to many other countries across the world, Eshe observed that previous US tariffs applied only to certain industries, countries, or goods. "Now we're talking about across-the-board tariffs, this makes for a more complicated situation doesn't it?"

Richard noted that with a fall in GDP across the eurozone the problems associated with tariffs presented an immediately bigger challenge for Europe, with a still bigger impact on China.

Eshe commented that Nisa has said that Mexico and smaller European economies such as Switzerland, Hungary, and Poland, will see a disproportionately sized impact on their economies if a new series of across-the-board Trump-inspired tariffs are introduced, and asked Linda what she thought the impact of such tariffs would be.

"Expect retaliation if these tariffs go ahead. The countries that are in the headlights just now are those nations with a trade surplus with the US, such as China, Germany, Mexico, and Vietnam." But while Germany and China's trading position with the US is well known, Linda said that countries such as Vietnam and Mexico are more interesting to examine.

"In Trump 1.0 and Obama’s Asia pivot, and under the Biden administration as well, there has been a lot of trade tension. Trade has begun to go through 'connector countries', something the IMF has been watching. It is a diversion of trade, but it is also a natural evolution of trade because much of the trade originates from China but then is channelled through connector countries such as Mexico."

Impact on green economy and global warming

Joseba he is much more concerned about the long-term effect that a Trump presidency might bring on the still nascent green economy and on global warming in general.

It is widely believed that Trump’s promise to go for broke on fossil fuel production in the US and reverse the constraints on the development of hydrocarbon exploration that the Biden administration has put in place, might deal a serious blow to the global climate change and renewable energy regime. "I am much more concerned about the long-term effect that a Trump presidency might bring in this particular regard," said Joseba.

To listen to the full Think Ahead discussion, click here.