ohPolls taken over the weekend suggest that Donald Trump’s narrow escape from an assassination attempt in Pennsylvania has increased his chances of returning to the White House. Until now, little attention has been paid to how Trump 2.0 will affect the US and global economies. But that will now change.
What the world needs is a period of stability after the recent blows. That would mean the exact opposite if Trump were to avenge his 2020 defeat at the hands of Joe Biden in November.
Of course, there are other reasons to be concerned about President Trump’s reelection, but anyone wondering what the next big economic shock will be after the pandemic and the Ukraine war needs only to look at the front-runner to lead the world’s largest economy in six months’ time.
In its latest health check for the global economy, released on Tuesday, the IMF highlighted the risk of major shifts in economic policy as a result of this year’s elections. It didn’t mention the U.S. by name, but the implication was clear: Onerous tax cuts could lead to a worsening debt problem, higher long-term interest rates and increased protectionism.
“Trade tariffs, combined with the expansion of industrial policies around the world, can create harmful cross-border spillovers, provoke retaliation, and lead to a costly race to the bottom,” the IMF said.
Trump’s economic strategy is highly protectionist, contradictory and dangerous. It is contradictory because he seems to think that the tariffs he plans to impose on goods coming into the US from China (and other countries) will pay for income tax cuts. In reality, the tariffs will mean higher prices for American consumers, with low- and middle-income earners being hit the hardest. Tax cuts will primarily benefit corporations and wealthy individuals.
That would be dangerous in a number of ways. First, it risks sparking a full-scale trade war with China. Second, higher import prices could lead to higher inflation in the U.S. and higher interest rates. Tough restrictions on immigration are promised, which would have the effect of reducing the labor supply and increasing upward pressure on wages.
Finally, a Trump isolationist foreign policy would likely result in higher commodity prices and financial market turmoil: Trump favors a weaker dollar, which has strengthened in periods of global instability in the past, and would be much more likely under a Trump presidency.
The potential consequences of all this are clear: stagflation, attempts to force the Federal Reserve to cut interest rates, further crises for poor, highly indebted countries that borrowed in dollars, and further backsliding on globalization. And that doesn’t even take into account the risk of an escalating cold war with China.
The pressure was already building Biden was expected to withdraw from the race before the Pennsylvania shooting, but he faces a tougher fight than was expected six months ago. The U.S. economy was booming then. Now Slow down And unemployment is rising, which never bodes well for a sitting president.
Still, the U.S. has seen by far the strongest economic growth among the G7 since the pandemic ended. Inflation rose in 2021 and 2022, in line with developed countries overall, but not to the same extent as Europe. Biden has implemented infrastructure improvements and boosted manufacturing, and the subsidies included in the Inflation Control Act represent a more interventionist industrial strategy to stimulate green growth. He has delivered for working Americans.
But Biden has the same problem that Rishi Sunak had in the UK general election: Voters feel they are getting poorer, even as they are getting richer, in the half-dozen or so battleground states that will decide who wins in November. Trump It’s up ahead.
These are not insurmountable leads, and under normal circumstances, the incumbent president would be fairly certain of victory at this stage in the campaign. But these are not normal times.
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Mr. Trump has succeeded in convincing many voters that things are worse in the United States than they actually are. Indeed, he recognized the potential of tapping into the resentment of a hollowed-out middle class long before his political opponents did. That sense of decadence remains, especially among Republicans.
Americans are far more optimistic about their own financial situation than they are about the economy as a whole. With growth slowing under the weight of rising interest rates, it will be much harder for Biden to counter Trump’s claims that things have gotten worse since his defeat in 2020. The Fed now appears set to cut interest rates in September, but by then it may be too little, too late, for Biden.
The state of the economy is no longer Biden’s biggest concern. Indeed, the latest unemployment figures show that the U.S. Rising unemployment rate It rose from 4% to 4.1% in June, but is still low by historical standards.
Voters are concerned about whether Biden is fit to serve now, much less for another four years, and the signs suggest he isn’t. Mistaking Volodymyr Zelensky for Vladimir Putin at last week’s NATO summit was just the latest damaging gaffe. Trump is hardly a model of persuasion, either, but that doesn’t matter. To many Americans, he seems more competent than Biden, especially after last month’s disastrous in-person debate.
It all comes down to this: Could a Democratic alternative shift the campaign to focus on the economic successes of the past four years rather than Biden’s weaknesses? Would that mean more attention would be focused on Trump’s personality and policies? Would that increase the Democrats’ chances of winning? The answers to those three questions are yes, yes and yes.
