What impact will Trump have on the Global Economy?
A second Trump presidency is expected to significantly impact the global economy with a focus on “America First” policies that prioritise domestic industries and protectionist trade measures.
Trump has already proposed a 10% tariff on all imports, which could disrupt international trade, especially with allies in Europe, Canada, and Japan. Such action would likely lead to retaliatory tariffs from other countries, increasing costs for American businesses and consumers, and potentially straining U.S. relations with key trading partners. Despite this, the stock market jumped 2.5% the day after the election, which the Economist noted was down to expectations of lower corporate taxes and a “bonfire of redtape” for the oil industry and Wall Street.
European countries are particularly concerned as Trump's approach may weaken NATO cohesion and reduce U.S. support for Ukraine. On paper this may look like Europe’s worst nightmare although Ukrainian President Zelensky was in fact quick to congratulate Trump on his victory. This is likely due to Ukraine losing patience with the Biden Administration’s general inaction from fear of provoking escalation with Russia. Although Trump’s plans in Ukraine remain unclear, Zelensky seems to prefer any alternative to the current status quo.
As for the rest of Europe, this would certainly push European nations to increase their defense spending independently. This shift may lead to a more self-reliant Europe, which would look to reduce dependency on the U.S. and adopt policies that insulate its economy from U.S. decisions. However this will prove difficult at a time when most European economies are floundering and nations such as Germany face their own leadership problems.
Meanwhile, Trump's tough stance on China is expected to continue, likely intensifying the economic rivalry between the two superpowers. A more protectionist U.S. could impact global supply chains, leading to increased costs and reduced efficiency in production for multinational companies reliant on international trade. These dynamics would add to global economic uncertainty and could slow growth, especially in economies closely tied to the U.S. and China.
If Trump plans to, in effect, freeze China out of the global economy as he sometimes suggests, Europe would feel some of the impact as China redirects its attention their way. This would force Europe to develop its own industrial policies to mitigate dependence on Chinese imports, something it was already hoping to resolve before Trump was re-elected.
In short, Trump’s policies could create a more fragmented global economic environment, leading to increased trade barriers, shifting alliances, and greater financial volatility.