The world braces for Trump's America First economic promises

Plans for trade tariffs, deregulation, and mass deportations will have huge repercussions on industries like finance, oil, and manufacturing. Meanwhile, the deficit is set to balloon.

AFP

Businessman Walter London reveals a T-shirt with US President-elect Donald Trump on it, at the headquarters of the New York Stock Exchange after he was announced the winner of the election on November 6, 2024.

The world braces for Trump's America First economic promises

Abdulfattah Khattab

last update on 17 Nov 2024

US President-elect Donald Trump’s campaign slogan ‘America First’ can mean a lot of things. Having secured the White House for 2025-29 and with Republican control of the House and Senate, economists worry that it will mean extreme economic policies. The US economy is the world’s largest with a gross domestic product (GDP) of $29.35tn—bigger than China’s ($18.54tn), Germany’s ($4.73tn), and Japan’s ($4.11tn) combined—so what Trump does matters.

The US is the world’s second-largest exporter of goods (after China), shipping products valued at more than $3tn last year, and the largest importer of goods, bringing in products valued at $3.8tn. According to the US Bureau of Economic Analysis (BEA), it is also the world’s largest exporter and importer of services, valued at $1tn and $714bn in 2023, respectively. US exports of oil and related products topped 10.15m barrels per day (bpd) last year, with imports of around 8.53m bpd.

The Trump we know

Analysts have been monitoring how the financial markets reacted to Trump’s win, and this week, the dollar remained strong. Markets know that his career as a businessman informs his thinking, decision-making, and deal-making. For instance, he believes in tax cuts for large corporations and high earners. This should encourage investors—who previously sought gold as a safe haven—to instead invest in stocks and shares.

As in his first term, he plans to press companies to move their headquarters and factories back to America while cutting back on foreign aid. Under his protectionist America First doctrine, he aims to use tariffs and duties to increase government revenue, strengthen US industries, and reduce dependence on global trade. He has proposed tariffs of 10-20% on imports, but Chinese imports could face a 60% tariff, while those on Mexico-manufactured cars could be up to 200%.

Trump aims to use tariffs and duties to increase government revenue, strengthen US industries, and reduce dependence on global trade

Trump is famous for wanting to reduce immigration, in part by closing and securing the borders and building a border wall with Mexico. He has also threatened to initiate the deportation of undocumented migrants. On hydrocarbons, he wants to ramp up oil and gas drilling by expanding federal leases (in areas thought to be rich in reserves) and repealing environmental regulations to maintain America's position as the world's top oil producer.

Trump's first term

Many of Trump's economic ideas echo those of his first term (2017–21), when he withdrew the US from the Trans-Pacific Partnership and the Paris Climate Accords and pressured Western partners in the North American Free Trade Association (NAFTA) to remove 'free trade' from its name.

Companies faced increased tariffs during Trump's first term. He claimed this had no inflationary effect, but Professor Kyle Handley at the University of California, San Diego, said the resulting pressure on supply chains added 2-4% in import tariffs. As a result, many companies had to raise prices.

During his 2016 election campaign, Trump pledged to eliminate the national debt in eight years, but when in office he approved significant increases in government spending together with tax cuts, leading to a sharp rise in the federal budget deficit. In 2018, he did not respond to calls from banks to ease regulatory requirements, stress tests, or capital requirements for those with less than $250bn in assets.

Election reactions

When Trump won earlier this month, shares of major US banks like Citigroup, JPMorgan, and Goldman Sachs soared, given his promises to cut taxes and reduce banking regulations. The S&P 500 stock index hit new highs. Goldman Sachs thinks Trump's plan to cut corporate tax from 21% to 15% could boost the index by 4%.

AFP — Tesla CEO Elon Musk gestures during the Tesla China-made Model 3 Delivery Ceremony in Shanghai.

According to Bloomberg, the dollar saw its biggest gain since March 2020, while Shares of Tesla, owned by major Trump supporter Elon Musk, soared by 13%, pushing its value past $1tn. Cryptocurrency also hit new highs while gold prices fell.

Prior to the election, The Financial Times reported that the prospect of a Trump win was putting pressure on the share prices of European exporters, such as carmakers and luxury goods companies because of his expected new tariffs. The Tax Foundation said these could negate the benefits of his tax cuts without offsetting the loss of tax revenue. Economists also warn that tariffs could increase consumer prices and hit global trade, with no guaranteed benefits for the US.

Debt and inflation

The Peterson Institute said other Trump plans—such as revoking China's permanent normal trade relations status, which it has held for 24 years—could add 0.4% to the rate of inflation. If implemented, analysts say Trump's plans cut US-China trade by 70%, redirecting or eliminating hundreds of billions of dollars in exchange.

A key concern for voters was energy costs, and Trump is expected to try to halve these in his first year in office, in part by further deregulating the US oil and gas sector. He also wants to cut costs in the food sector by imposing strict limits on agricultural imports. Economists say this would provoke retaliation and damage America's agricultural sector, which relies heavily on exports.

If implemented, Trump's America First policies are expected to increase national debt by up to $4tn over the next decade, which could lead to a stronger dollar and higher inflation, with the Federal Reserve less inclined to cut interest rates.

If implemented, Trump's America First policies are expected to increase national debt by up to $4tn over the next decade

The US Federal Budget Committee predicted in October that Trump's plans would more than double the increase in federal debt compared to those of his Democratic election opponent, Kamala Harris. It said federal debt would rise by $7.5tn by 2035 if Trump followed through on his promises to cut taxes, impose tariffs, and deport millions.

International reaction

In addition to US inflation concerns, China and the European Union are wary of Trump's plans. In 2022, China-US trade was worth around $690bn. China was the fourth largest export market for the US ($154bn) and the second largest source of US imports ($536bn).

By October 2023, the trade balance between China and the US had fallen 170%, with US imports from China down from $462bn to $357bn. US exports to China remained steady ($125bn in 2022, $122bn in 2023). According to the US Census Bureau, the trade balance with China recorded a deficit of almost $64bn in the third quarter of 2023. The value of trade in goods between the EU and the US was €388bn in 2023, while it was around $180bn with Gulf Cooperation Council (GCC) countries in 2023.

Trump's victory will usher in many changes around the world, not least political and military, while the economic and financial consequences—both in the US and abroad—are still to be seen. The markets will be keeping a watchful eye on developments.

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