Published :
Updated :
For all latest news, follow The Financial Express Google News channel.
Donald Trump's decisive election victory - an extraordinary comeback no doubt -- has left world leaders contemplating on how to deal with his presidency's likely ramifications for the global economy, particularly in shaping its direction.
In his pre-election campaigns he had said he would govern by a simple motto -- "Promise made, promise kept". His campaign pledges include an escalation of tariffs on all US imports and the biggest mass deportation of migrants in history. He also promised tax cuts, deregulation, and a push to withdraw from major global agreements. He intends to have a say on Federal Reserve policy as well.
However, it is very difficult to fathom how far Trump will push these measures in this term of his presidency. While the outcome of the US presidential election will not change the world, the upshot of any of these measures will have dire consequences across the world with long term implications. One may recall him saying in his election victory speech, "Nothing will stop me from keeping my word to you, the people". This means his economic agenda needs to be taken seriously.
In his election campaign Trump had said that he would impose 60 per cent tariff on goods coming from China and 10 to 20 per cent on other trading partners. Bloomberg expressed the view that tariff at a level of 60 per cent would decimate trade between the world's biggest economies and it is estimated that could lead a cut in China's growth rate between 2-2.5 percentage points.
Trump has vowed to bring back jobs to the US and argues he can do so by imposing across-the-board tariffs up to 20 per cent on American imports. It is to be noted that tariffs are not borne by exporting countries but are paid by the importing country companies, i.e. US firms causing prices to rise and making taxed imported products less competitive with domestically produced similar products. It is estimated that Trump's tariff measures on Chinese and other imports would raise prices by 0.5 to 4.3 per cent and slow down economic growth.
Trump previously described tariff as his most favourite word and sees tariff to help grow the US economy, protect jobs and raise revenue. He even called tariff 'the most beautiful word in the dictionary". Trump sees tariff to deal with myriad issues ranging from containing China, reducing budget deficits, even preventing immigration.
A most frequently cited argument by Trump in his previous tariff plans for China was to boost domestic manufacturing, but that did not happen. There is no evidence to suggest that tariffs protect jobs. At best, tariffs possibly can protect some jobs in some sectors at the cost of losing jobs elsewhere.
While the bilateral trade deficit with China has reduced slightly under the previous Trump administration, trade deficits with other Asian countries surged. Now these Asian countries like South Korea, Taiwan and Vietnam may also be likely victims of Trump's tariffs. Trump's trade policy is also likely to be most consequential for emerging Asian economies.
The 'proposed' US tariffs would slow the Chinese economy and reduce demand for goods and raw materials from other countries like Australia. According to the Peterson Institute for International Economics in Washington D.C., it is estimated that the combined effect of tax cuts and tariffs will reduce post-tax incomes for poorer Americans by around 3.5 per cent.
Historically, tariffs have resulted in increased prices for the imposing country since they are effectively a tax on consumption. Tariffs can drive inflation by raising the cost of imports, limiting the availability of affordable options and weaken domestic competition enabling domestic producers to raise their own prices.
The Peterson Institute had made an economic analysis of Trump's economic proposals. The Institute concluded that inflation, which would otherwise register 1.9 per cent in 2026, could jump to between 6 and 9.3 per cent if Trump's proposals are adopted.
While China can hardly do much about 60 per cent tariffs, it has options to take counter measures which may include restrictions on imports of US agricultural products, devaluing the yuan and further stimulating trade ties with Europe and Latin America. China has other options. China now has more streamlined process for sanctioning foreign firms for undermining Chinese laws with political implications and targeting US firms with sizeable interest in China and selling US treasury bonds. China also can take domestic measures to further stimulate the economy and bolster domestic consumption, which China so far tried to avoid.
Even base tariffs of 10 per cent on all imports into the US will cause shiver around world's manufacturers, particularly German car makers. According to a study undertaken by the London School of Economics (LSE), the 10 per cent universal tariff proposal would be the most damaging for the European economies, even countries less affected by the full set of proposals. The report further added that certain European sectors, particularly Germany's automobile exports, would be disproportionately affected and may require targeted protective measures.
Uncertainty over Trump's stance on the Russia-Ukraine conflict also deeply concerns EU leaders and creates further instability in Europe with implications for both regional and global growth. He has also promised to end the war in 24 hours once in office. But it is not clear how he plans to do that. However, Vice President-elect J.D. Vance suggested that it would involve freezing the current front lines in place and Ukraine declaring its neutrality and giving up its ambition to join NATO.
From security point of view Europe is also worryingly dependent on the US security umbrella, as the Russia-Ukraine conflict enters a third winter and Joe Biden, a staunch anti-Russian, leaves the oval office. Most EU leaders have been very supportive of Biden's hawkish position on Russia on the Ukraine issue. European defence has also been a cornerstone of Biden's foreign policy. Europe is in a difficult position now to find adequate response to Trump.
Some leaders across South Asia have warmly congratulated president-elect Donald Trump voicing their readiness to work with his administration. Modi in his X/Twitter even described Trump as "my friend". Modi's warm relationship goes far beyond shared Indo-US strategic and economic interests. He is a far-right political leader in Trump's mould.
Bangladesh enjoys favourable trade balance and achieved a trade surplus of US$6 billion last year. As Bangladesh products already encounter an average tariff rate of about 16 per cent in the US market, the country is unlikely to be impacted by the Trump's tariff agenda. It now appears that the interim government is trying to delay the graduation of Bangladesh from the least developed country (LDC) to a lower middle income developing country (DC) beyond 2026. If that is the case, the country needs to try to have duty free access for its goods into the US.
Because of Trump's proposed actions, inflation is likely to rise and that will make it difficult for the Federal Reserve to lower interest rates causing yields on government bonds to remain high. Beyond the concerns of tariffs, the major short- to- medium term problem is rising public debt in the US and the implication for global financial stability. Overall, his policy will fuel inflation, increase debt, keep interest rate high for longer period.
It is suggested that Trump is using tariffs as a political device to signal his strong scepticism about globalisation. Trump's tariffs will not only disrupt global trade, especially Chinese exports, but could also deal a nasty blow to the rule-based global trading system of the World Trade Organisation (WTO).
Trump's trade war will create an environment of uncertainty. His protectionist tariff policies would cause economic growth around the world to slow down. More alarmingly, this US tariff measures could rival those of Smoot-Hawley measures of 1930s that led to a global trade war, thus creating the conditions for the WWII.
It is important to recognise as Fyodor Lukyanov, a prominent Russian expert in the field of international relations and foreign affairs pointed out, "Trump and Trumpists are not an accidental aberration and they do not represent a temporary deviation from the course of history. They reflect the mood of most Americans. And we have to proceed on that basis".
The proposed tariffs to protect US industries, and thereby jobs, have the potential to significantly change the course of international trade flows and supply chains. Trump is vastly underestimating the potential repercussions of his trade policy, and the retaliatory measures major trading nations might resort to.