After Trump’s triumph in the primaries of Iowa, New Hampshire and South Carolina, only his problems with justice could stop the nomination by the Republican Party. The election is open and Trump can win it. A return to power would be terrible news for democracy, but the question is what it would mean for the US economy and the world.
The first observation is that there can be a big difference between what Trump says he will do and what he will do, given that he is unpredictable and chaotic. Having said that, Trump wants to continue with the protectionist policy and has promised to put a general tariff of 10%, and 60% for products from China. Trump continues with the Republican strategy of lowering taxes (for individuals and companies) and increasing the deficit and debt. He wants to keep the tax cuts he implemented in 2017 and which begin to expire in 2025. The problem is that while the deficit in 2016 was 3.2% of GDP and the debt 76%, in 2024 these magnitudes are close to 6% and 100%, respectively. It is, de facto, a Keynesian policy of stimulating the economy as done by Reagan. The Biden Administration has maintained Trump’s tariffs and further restricted the supply of advanced chips to China, and has also run large deficits in response to covid and with industrial policy measures such as the Inflation Reduction Act ( IRA, according to the acronyms in English). So what sets them apart?
First, that Biden wants to raise taxes, for example, the corporate tax from 21% to 28%. Second, in the field of energy, Trump would encourage the production of fossil fuels with tax incentives and reverse the IRA’s measures to fight climate change. While Biden has just frozen permits to build new liquefied natural gas export terminals. Third, Trump would try to influence the Federal Reserve by possibly replacing Jerome Powell in May 2026, he would want a docile Fed chairman who would not raise interest rates in response to stimulus from the Republican administration. In other policies there would be more continuity. Both Biden and Trump believe in intervention in the economy and protectionism. Both believe in industrial policy (with the difference that Trump doesn’t want it green) and want “jobs in America” ??(as Biden recently told the powerful UAW auto workers union). Both Biden and Trump do not plan to reform federal spending on pensions and health care (half of the budget). Both want to control immigration, although Trump promises to go further by deporting illegal immigrants, which would cause serious problems in several sectors of the economy in an already strained labor market.
Finally, one must ask what implications a Trump victory would have on the international economy. Multilateral institutions would suffer given their isolationism and nationalism. However, the roulette wheel would begin to turn in its actions, or without, in open conflicts in Ukraine and the Middle East, and latent ones such as in Taiwan. Think of energy prices and the problems in the Red Sea, or the supply of chips and a crisis in Taiwan. Uncertainty would increase markedly, which is not good for business investment. Add to that the possible instability of the dollar if the US deepens in an irresponsible fiscal policy. This would certainly cause a tsunami in the world economy.
