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Monday, December 9, 2024
In light of Trump's impending return to the presidency, how are global economies responding?
In light of Trump's impending return to the presidency, how are global economies responding?
Investors and economists anticipate that Donald Trump's second term as president will have a number of profound and far-reaching effects. This week has already seen notable volatility in a number of financial areas, including corporate share prices, commodities, and currencies.
Here are some possible financial and economic repercussions of what some analysts and academics are calling "Trumponomics 2.0."
The stock market
Since Tuesday, the share prices of numerous significant American firms have reflected the potential for businesses to increase their profits through the promise of reduced taxes and less regulation. Investors purchase shares of a company that offers the possibility of increased future profits, which raises the stock's price. For people working in the banking, cryptocurrency, technology, defense, and fossil fuel sectors, this tendency may persist.
According to Goldman Sachs, lowering corporate tax rates might result in a 4% increase in profits for the biggest American corporations. However, there may be corporate winners and losers worldwide, especially for businesses that depend on imported goods or resources, sell to foreign customers, or are involved in international supply chains.
In a research note, Emmanuel Cau of the British bank Barclays warned that a significant amount of the profits made by European businesses might be lost the next year. He explained that industries that make chemicals, autos, and drinks could be particularly affected due to their reliance on trade with the United States.
According to Stephen Woolcock, a specialist in international trade policy at the London School of Economics, "those companies are suffering in terms of their share prices." This is a very intricate web of supply chains, and the United States' higher tariffs, which are likely to provoke retaliation from other powerful trade nations, would upset those supply chains, creating uncertainty and raising costs, which would then have an impact on businesses.
Unless they boost their consumer pricing, companies that wind up with higher costs as a result of tariffs may see lower earnings, which could translate into lower share prices. However, increased inflation may result from higher prices.
Incomes, inflation, and trade
In Chicago last month, Trump declared, "To me, tariff is the most beautiful word in the dictionary." Many analysts believe that investors are already expecting tariffs ranging from 10% on products from certain nations to up to 60% on commodities from China, based on Trump's last tenure in the White House and campaign statements such as these.
Sebastian Jean, an associate director at the French Institute of International Relations and a professor of economics at CNAM university in Paris, states that if tariffs are imposed universally, consumers will be affected by higher prices.
Restoring the expired 2017 tax cuts that primarily benefited wealthy Americans and raising import tariffs, as Trump suggested during the campaign, could lower post-tax incomes for lower-income Americans by about 3.5% and "cost a typical household in the middle of the income distribution about $1,700 in increased taxes each year," according to estimates made this summer by economic experts at the nonpartisan Peterson Institute for International Economics in Washington, D.C.
Strengthening American production was a widely reported goal of Trump's prior tariff proposals. Trump's tariffs on China, however, simply moved manufacturing abroad rather than bringing much of it to the United States.
Federica Ghiretti, an economic security expert at Rand, claims that during the so-called "trade war" that raged in 2018, consumers in the US and China were the only ones who lost out.
According to her, "the impact on the world has been relatively limited." "There have even been opportunities in certain cases for third countries to enter and occupy those parts of the supply chains that were restricted or left empty by the United States or China."
"Unpredictability is something that global financial markets don't like, but they should now expect it," Jean argues. He claims that Trump's administration will usher in a period of greater unpredictability, which is typically detrimental to commerce.
Debt
The U.S. government's total debt increased during the previous Trump administration, partly due to tax cuts and emergency spending associated with the COVID-19 pandemic. The fiscal deficit, which is a measure of the gap between the amount of money the U.S. Treasury receives from taxes and other sources and the amount it spends on government programs, also widened.
Following Trump's victory on Tuesday, investors are concerned about future U.S. deficits and, consequently, the country's debt load due to the possibility of new, "unfunded" expenditure that would rely on borrowing more money from the financial markets rather than raising taxes. The additional deficit over the next ten years is estimated to be above $7 trillion.
Investors who are concerned about a nation's debt sustainability effectively demand higher interest rates on loans they make to the government of that nation. Additionally, even prior to the election, worries about the nation's public debt resulted in higher yields on existing loans, a sign that the U.S. government would have to pay more to borrow money.
According to economist Ulrike Malmendier of the University of California, Berkeley, "there seems to be a continued desire to go ahead with the economic program without any regard towards reining in the deficit spending — the ever-increasing debt quota of the U.S., which will get the U.S. into trouble at some point."
Furthermore, it will be challenging for the Federal Reserve to cut interest rates if inflation is predicted to increase as a result of Trump's policies once in office. Additionally, that reality would probably encourage government debt yields to stay high, making future deficit reductions even more costly.
Climate-related investments
In addition to working to prevent additional spending associated with President Biden's Inflation Reduction Act, the president-elect has stated time and again that he will remove regulatory limits on coal mining, oil drilling, and gas exploration. According to experts, the act has encouraged large amounts of private capital to invest in "green tech," such as solar, wind power, carbon capture, and electric battery storage, in addition to promoting initiatives, companies, and technology intended to combat climate change.
With all of the resulting effects on global carbon emissions, Trump will attempt to keep America the world's largest producer of petroleum by promoting more domestic fossil fuel projects. However, experts caution that this could ultimately hurt sustainability-focused financial funds that have supported a large portion of the energy transition and the ongoing efforts to meet previously agreed global climate goals.
Donald Trump's new tenure and global leadership
Donald Trump's new tenure and global leadership
America First
The American people sent Donald Trump to the White House with full authority this time. He received 326 electoral college votes, which is an extraordinary feat. He also had a clear lead in the popular vote and in most states. The Senate and Congress are now under the control of the Republican Party, which means that Trump will have no difficulty in passing bills related to finance, administration, or foreign policy.
In addition, in the United States, many important posts such as Secretary of State, National Security Advisor and CIA Director require Senate approval for their appointment, so due to the Republican Party's majority there, Trump will be able to easily bring people of his choice to important posts. There will be fewer checks and balances, which is not good for democracy, but this is the will of the American people. It has been decades since the people have given so much power to a president in America. Donald Trump's focus has always been on internal changes and reforms.
He has been promising “America First” and making it greater for the past ten years, and this time the American people have given him the full authority to do so. The talk of public division that was so loudly propagated in the media has now been silenced, and the eyes of not only the American people, but the world at large are on Trump to see how he moves forward.
In this regard, his most important decision concerns the people appointed to important positions, because it is from this that it is possible to gauge his seriousness in implementing promises or manifestos. These are Trump's last four years, after which he will not be able to run for president under the US Constitution. It remains to be seen how many changes he brings in this last period of his government.
However, this issue needs to be considered from two perspectives. The actions he takes domestically will have direct implications for the American people, while developments in foreign affairs will impact global affairs.
It is also important to see which of his contemporary leaders Trump will face and to what extent he will be able to convince them. In the last term, Trump was criticized for being an apolitical and unconventional president, so he faced difficulties in appointing his cabinet and important positions and kept changing the officials repeatedly throughout his term in office, which caused turmoil in the departments, but this time this work is being done with great planning and confidence.
It should be noted that the US president can appoint 4,000 people to various positions. Trump's manifesto consists of three points: immigration, economy, and foreign policy. And that he also wants to end two wars, namely the Ukraine and the Palestinian wars.
The first post the newly elected US president has appointed is the White House Chief of Staff. Suzy Wiles will oversee all White House matters, whether administrative or political. Suzy was also in charge of Trump's election campaign and is said to be not only very serious about her job, but also very skilled at it. She is also well-acquainted with Trump's associates, Republican lawmakers, state governors and other important government and state officials.
It should be noted that she has previously held an important position in the White House and is fully aware of its ins and outs and the way the work is done here. Among the important matters of the White House, where the President's program and hospitality of foreign leaders are included, decisive explanations regarding American policy or any action abroad are also presented to the media from here. Thus, the role of this house is key in the image of the President and the government.
Trump's biggest and most fundamental promise is related to immigration. As if, the basis of his nationalism is opposition to illegal immigrants. Trump's aggressive approach on this issue strengthened nationalism in European and Western countries, which is why anti-immigrant parties came to power in the elections held there this year or their influence increased to the point that even left-wing parties had to take a tough stance on this issue. France, Germany, and Poland, which are the most important and largest countries in Europe, are clear examples of this wave.
The first minister Trump has chosen for his cabinet is immigration. This will be the most important ministry of the Trump administration, as it will be responsible for the deportation of millions of illegal immigrants from the country. The one chosen for this ministry, Tom Homan, has a reputation as a tough man.
He is a former police officer and was the director of border control during Trump's first term. He also took such tough measures at that time, which were widely criticized. He will be joined by Christine Noam, the governor of South Dakota, in charge of Homeland Security.
It will look at cyberwar, terrorism and other urgent issues. This is a huge US agency, with a budget of 62 billion dollars and thousands of employees. Alice Stefanik was chosen as the US ambassador to the United Nations.
This is an important position related to foreign affairs, because whether it is the war in Ukraine or the issues of Gaza and Iran, all come under the UN and agreements are made under its umbrella. A new ministry has been created to reform the internal bureaucracy and bring it into line with modern requirements, whose minister is Trump's close ally, Elon Musk.
Interaction with Global Leadership
Ø China
If we look at the world of Trump’s new era, we will see a precedent for him in China with President Xi Jinping. Trump criticized China the most in economic matters during his first term. He said that the United States has to bear a loss of about three hundred billion dollars in China-US trade, due to which its economy is continuously suffering losses.
He also said that the main reason for the decline in manufacturing in the United States is Chinese exports, and for this he also kept blaming previous US presidents for making loss-making deals with China. In the last days of Trump’s term, when Corona engulfed the world, the United States blamed China for the spread of the epidemic. Trump and Xi Jinping had several meetings during their first term.
Trump said that these meetings developed into good understanding and even friendship, but Trump imposed taxes on Chinese goods, which was called the “China-US trade war”. The war between these two major economic powers was said to be a sign of economic danger to the world, but the meetings between Xi Jinping and Trump reduced tensions. China has now come a long way and has also become important in world political affairs.
In the Ukraine war, it supports Russia, and it also buys the cheapest oil from it the most, but it also says that the war should be ended through negotiations. China also brokered an agreement between Saudi Arabia and Iran in the Middle East. Then it also united the different factions of the Palestinians, but it also has a very good friendship with Israel. As far as statements are concerned, it has taken a principled position on Gaza, but has not taken any practical steps.
Ø Russia
However, Trump will have to deal with Xi Jinping again, and that may not be too difficult. In Russia, President Putin has been elected president until 2028 this year and he is responsible for the war in Ukraine. A major reason for the length of the war in Ukraine is that Putin has not been active in Gaza or the Middle East. Trump knows Putin well and has met him two or three times.
Ø Europe
Trump's relations with China and Russia played a major role in the negotiations with North Korea. Although foreign affairs are Trump's second priority, the promise to end the war in Ukraine is directly related to Putin, who has expressed his willingness to negotiate a ceasefire in one of his messages, but European countries and NATO are also of fundamental importance in this matter. In the UK, the Conservative Party has been replaced by the Labour Party, led by Keir Starmer, who is the Prime Minister of the United Kingdom.
The Labour Party leans towards the left, but the UK-US relationship is so close that this is not a big deal. Starmer met Trump on his first visit to the US and was one of the first world leaders to congratulate him on his landslide victory. President Macron is in France, whom Trump knows well. It should be noted that the way nationalist parties in Europe are coming to power could make it easier for Trump to get things done, especially in ending the war in Ukraine.
Ø Middle East
Prince Mohammed bin Salman is not only the most important leader of Saudi Arabia, but also of the Middle East. There has been no change in the leadership of Israel and Iran. Trump has promised to stop the bloodshed in Gaza and the Middle East, and these countries will be the main players in this regard. Trump is a staunch opponent of Iran and its proxies, i.e. militias.
After a year of war, not only has the power of these warring organizations decreased, but all their prominent leaders have also lost their lives. It should be remembered that during the previous Trump era, the second most powerful figure in Iran, General Soleimani, who controlled Iran’s aggressive foreign policy in the Middle East, was killed by the US in a drone strike in Iraq.
Trump also believes that a two-state solution for Palestine will be possible after relations between Arab countries and Israel are established, and he made significant progress in this direction during his first term. He has very good relations with Arab countries, while today the Muslim world is also looking to Trump to stop the Israeli aggression on Gaza.
Even his critics admit that any positive progress on Trump's ceasefire will be supported by everyone. However, it should not be forgotten that Trump is a strong supporter of Israel and he will not take any action that would weaken Israel. After all, Israel is the axis of implementing American policies and protecting interests in the Middle East.
Ø South East Asia
India, the world’s second most populous country, is ruled by Narendra Modi, who has a long-standing relationship with Donald Trump. Not only are Trump and Modi personal friends, but the closeness between the US and India is also no secret. India is one of the five members of the Quad Forum, which is trying to stop China’s progress in the Indo-Pacific.
India is part of the “Mumbai, Dubai, Europe Corridor” with the US and Arab countries, which the US has built in competition with CPEC and which was announced at the G-20 summit in New Delhi. Most of the heads of the largest US tech companies are Indian citizens. Then there is the fact that India has $650 billion in reserves and a vast market, which is attractive to a business president like Trump.
Narendra Modi’s coming to power will provide many conveniences for Trump. In Southeast Asia or Indo-Pacific, which is now the center of American power, all the leaders are very familiar with Trump. Japan is America’s biggest ally in the region and whenever any Prime Minister comes there, it is in line with American policies that China’s progress here is considered a threat to the region.
Ø Pakistan & Afghanistan
America has closed the chapter on Afghanistan, so now relations with Pakistan will be seen only at the bilateral level. America is Pakistan’s largest economic partner. In the past, Trump’s entire focus was on returning from Afghanistan and in this regard, he needed Pakistan’s support, which the PTI government provided him. The way this party is celebrating Trump’s victory is unprecedented in the past.
Trump is being expected to solve every problem, although this is not possible. Anyway, there is no such tradition in America that someone takes refuge there and starts a movement in his own country, like Ayatollah Khomeini started a movement from France and overthrew the Shah. If any party or ruler in Pakistan offers Trump mutual cooperation, he may take an interest in it. Trump has no concern with issues like human rights, revolution, corruption, he is a businessman and sees the world only from the perspective of loss or profit.
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