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What Trump’s historic election victory means for the global economy

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A worker is making textile export orders at a production workshop of a textile enterprise in Binzhou, China, on July 8, 2024.

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Donald Trump‘s election victory over Vice President Kamala Harris marks a historic return to the White House — an extraordinary political comeback that is likely to have seismic ramifications for the global economy.

Speaking to his supporters in Florida early Wednesday, Trump said an “unprecedented and powerful mandate” would usher in “the golden age of America.”

The former president’s litany of campaign pledges include steep tariffs, tax cuts, deregulation and a push to withdraw from key global agreements.

Analysts say it is hard to pin down the extent to which Trump will seek to implement these measures in his second four-year term, but the consequences of any will have clear repercussions across the globe.

Lizzy Galbraith, political economist at asset manager Abrdn, said it remains to be seen exactly what style of presidency investors can expect when Trump returns to the White House.

“Congress has a really big part to play in this,” Galbraith told CNBC’s “Squawk Box Europe” on Thursday.

Trump's principle tariff focus will be China — not elsewhere, says political economist

“If Trump does have unified control of Congress, as is looking very likely and is what we expect to happen over the next few weeks and days, then he does have greater latitude to implement his tax-cutting agenda, his deregulatory agenda, for example, but we are also likely to see elements of his trade policy sitting alongside that.”

On tariffs, Galbraith said there were currently two schools of thought. Either Trump seeks to use them as a bargaining tool to gain concessions from other parties — or he delivers on his promise and implements them much more broadly.

Trump’s favorite word

Trump has previously described “tariff” as his favorite word, calling it “the most beautiful word in the dictionary.”

In an effort to raise revenues, Trump has suggested he could impose a blanket 20% tariff on all goods imported into the U.S., with a tariff of up to 60% for Chinese products and one as high as 2,000% on vehicles built in Mexico.

For the European Union, meanwhile, Trump has said the 27-nation bloc will pay a “big price” for not buying enough American exports.

Former US President Donald Trump arrives during a “Get Out The Vote” rally in Greensboro, North Carolina, US, on Saturday, March 2, 2024.

Bloomberg | Bloomberg | Getty Images

“Now, I think it is worth pointing out that we do think that in any situation which Trump is using tariffs quite often, his principal focus is going to be on China. And we don’t see Trump’s secondary tariff pledge — that baseline tariff, which would hurt European companies — as being all that feasible,” Galbraith said.

“So, it’s not necessarily our base case that you see something like a baseline tariff applied that would really hurt European goods although there is still a distinct possibility there that specific European products could be affected,” she added.

Analysts have warned that Trump’s plan to impose universal tariffs are highly likely to raise prices for consumers and slow spending.

Europe

Ben May, director of global macro research at Oxford Economics, said the direct impact of Trump 2.0 on economic growth is likely to be limited in the near term, “but masks major implications for trade and the composition of growth, and for financial markets.”

For instance, May said that in a scenario in which the more radical aspects of Trump’s policy agenda are adopted, particularly on tariffs, the impact across the globe will be “very sizable.”

“A key unknown is whether a clean sweep raises the risk that a Trump administration will push through more extreme policy measures, such as larger, less-targeted tariffs,” May said in a research note.

“Uncertainty over Trump’s stance on the conflicts in Ukraine and the Middle East also adds to the risk of greater instability in both regions, which could take a toll on regional, and even global, growth,” he added.

Europe is seen as a loser of a Trump presidency, Barclays strategist says

The prospect of a second Trump presidency had long been viewed as negative for Europe and the European Union more broadly.

Yet, analysts at Signum Global Advisors said in a research note on Wednesday that “the magnitude of that truth remains underappreciated.”

Indeed, they argued that several factors mean the EU is likely to be “the biggest loser of a second Trump era,” citing trade tensions, an ongoing frustration with key European policy decisions and Trump’s likely desire to double down on America’s advantage at attracting capital relocation.

Asia

Analysts at Macquarie Group said Thursday that, at face value, Trump’s election victory is “bad news for Asia,” particularly China, but the region is “more prepared” than in 2016, when he first moved into the White House.

A cargo ship is sailing towards the docking of a foreign trade container terminal in Qingdao Port, Shandong province, in Qingdao, China, on June 7, 2024.

Costfoto | Nurphoto | Getty Images

“A key tenet of Trump’s campaign was higher tariffs. While well telegraphed, the headwinds that are likely to sweep across Asia, particularly China, should spike volatility and compress multiples as uncertainty prevails,” analyst at Macquarie Group said in a research note.

“A counter-balance to this is a likely acceleration in China stimulus measures,” they added. “The Chinese government has already outlined its ambitions to support economic growth at the 5% level and address property market woes to support domestic consumer confidence.”

Mitchell Reiss, an American diplomat and distinguished fellow at the Royal United Services Institute (RUSI) think tank, said there are likely to be some differences to the Trump playbook this time round.

A 'lot of opportunities for growth' in defense stocks after Trump's win, RUSI fellow says

“I think that President-elect Trump has said that he would like to increase tariffs on China again until the playing field is level, in his view,” Reiss told CNBC’s “Squawk Box Europe” on Thursday.

“What was interesting the last time when Trump won was the number of China hawks that staffed his administration. This was a very tough administration in terms of personnel and in terms of their view of how they saw China as an adversary, expansionist in the South China Sea and contrary to American values and friends and allies around the world,” he continued.

“So, I don’t think that that’s going to change. I think that might be mitigated a bit by the economic interaction that we have with China, but I think that it is going to be a complicated relationship going forward.”

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Economics

What a Republican trifecta will mean for governing

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DONALD TRUMP won a decisive victory in the presidential contest and is on track to become the first Republican in two decades to win the popular vote. His party also won the Senate and is favoured to regain full control of Congress by retaining the House of Representatives. It could take weeks before his party knows the size of its Senate majority and whether its apparent House victory is confirmed. The final margins in both chambers will set the scope of Mr Trump’s freedom to enact his second-term agenda.

In any event, Mr Trump’s leeway to appoint cabinet members, confirm judges, and influence spending and tax legislation in Congress is likely to be expansive. His victory ratified his iron grip on the Republican Party and the potency of his MAGA ideology and coalition. During his first term and in exile after his defeat in 2020, Mr Trump struggled at times to impose his will; his second term from January will begin with fewer constraints.

Yet sharing power with independent-minded senators and fractious congressmen is a fact of presidential life that even Mr Trump cannot wave away. The Senate has welcomed a slate of Trumpish Republican members in recent years, but remains a bastion of pre-Trump conservatism. The size of the Republican majority in the upper chamber will determine whether moderates like Susan Collins of Maine and Lisa Murkowski of Alaska are able to stifle Mr Trump’s worst impulses, particularly on staffing. In addition to the cabinet, senators must approve more than 1,000 senior jobs, from deputy department heads to generals and ambassadors.

Mr Trump’s campaign to reshape the federal judiciary will also require Senate endorsement. Nothing united Republicans during Mr Trump’s first term quite like his judicial nominations. He enjoyed a Republican-controlled Senate for four years, and under the leadership of Mitch McConnell the body approved 234 of his nominees, including three Supreme Court justices. It is now plausible that an outright majority of the high court will have been chosen by Mr Trump by the time his second term ends.

Mr McConnell, however, will not be leading Republicans next year. On November 13th the Senate will vote in what is currently a three-way race to replace him. John Thune, Mr McConnell’s leadership deputy, is the front-runner. John Cornyn of Texas represents Mr Thune’s biggest threat. Rick Scott of Florida is running a long-shot race from the right. Mr Thune, an establishment figure close to Mr McConnell, once had a rocky relationship with Mr Trump but has since patched it up. He looks likely to become a big figure in haggling between the White House, the House and the Senate.

Key provisions of Mr Trump’s 2017 tax-cutting law will expire in the absence of legislative action next year. Negotiations have yet to begin in earnest, but some battle lines are already being drawn. A Republican-controlled Senate is likely to fight to keep a contentious cap on tax deductions in high-tax states, but if Republicans secure a House majority because of wins in the high-tax states of California and New York, that would prompt a showdown between the two chambers. Congress will also have a say on whether to expand the child tax credit; whether to increase or cut corporate and individual rates; whether to fulfil campaign promises such as removing taxes on tips; and many other measures. On these matters the margins in both chambers will be as important as Mr Trump’s preferences.

The outcome in the House is the biggest unknown. From Alaska to Maine, there are still House races that remain too close to call. The non-partisan Cook Political Report now predicts a very narrow Republican majority in the lower chamber. A House Republican strategist reckons his party could lose one or two seats from its present five-seat majority.

If Mr Trump’s party does hold the lower chamber, House Republicans will have to appoint a speaker, a task that has repeatedly plunged its divided caucus into disarray. The incumbent, Mike Johnson, took the stage with Mr Trump in Palm Beach, just before 2:30am on Wednesday morning. In between praising the MAGA movement and his wife Melania, Mr Trump added, “I want to thank Mike Johnson, I think he’s doing a terrific job. Terrific job.” Any intraparty attempt to oust Mr Johnson will prompt a direct confrontation with Mr Trump, who will clearly have the upper hand after his thumping win.

Yet the probable Republican sweep in this election was a collective effort. After Republicans picked up an expected seat in West Virginia, networks called the Ohio Senate race—the most expensive in the country—for Bernie Moreno, who unseated Sherrod Brown, a three-term Democratic incumbent. The defeat of Jon Tester, a long-serving Democrat in deeply Republican Montana, secured their 52nd seat. And Republicans still have room to increase this new majority. Democratic incumbents remain within one point of their Republican challengers in Nevada and Pennsylvania. The Republicans could have 53 or 54 senators in the 100-seat body once all the votes are counted.

At the time of writing 412 of 435 House races have been called, with Republicans still five seats short of the 218 they need to maintain control of the chamber. At least one race seems destined for a recount, and others will be difficult to call soon.

Once the election is settled, in addition to tax legislation, other fights loom. The lame-duck Congress could pass another in a succession of short-term government-funding bills, but at some point in 2025 Congress will be responsible for a proper budget. And the Senate Armed Services Committee will now be led by a Republican who wants to increase defence spending to 5% of GDP.

Mr Trump has been endowed with plenty of political capital. How to spend it will be a subject of factional arguments, but the direction of travel is clear.

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Economics

What role might Trump give Robert F. Kennedy junior?

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AS DONALD Trump returns to power, several colourful characters surround him. One is Elon Musk. Another is Robert F. Kennedy junior, a vaccine-sceptic, conspiracy-theorist and excommunicated member of the Kennedy clan, who says he has “so many skeletons in my closet that if they could vote, I could be king of the world”.

Mr Kennedy joined the Trump campaign in August, after dropping out as an independent candidate. Since then Mr Trump has promised to let him “go wild” on health, food and medicine. In his victory speech on November 6th he singled Mr Kennedy out as the man who would help “Make America Healthy Again”. Although Mr Trump has been vague about what role he has in mind, Mr Kennedy claims he was promised “control of the public health agencies”.

This possibility has spooked those working in related fields. Mr Kennedy’s history of repeating debunked health claims, most damningly about linking childhood vaccines to autism, has been particularly damaging in a country where science has become deeply politicised. Even Mr Trump’s former surgeon-general has warned against appointing him to a senior post.

In a sign of what might lie ahead, Mr Kennedy warned on October 25th, on X, that the Food and Drug Administration’s “war on public health is about to end”, accusing it of suppressing psychedelics, stem cells, raw milk, hydroxychloroquine, sunshine and “anything else that advances human health and can’t be patented by Pharma”. On November 2nd he posted that the Trump White House would on its first day “advise all US water systems to remove fluoride from public water”.

What job, if any, might Mr Trump give him? That of secretary of health or FDA chief would require Senate confirmation, a spectacle Mr Trump may want to avoid. More likely might be an informal “health tsar” role. This could leave Mr Kennedy stuck in the White House basement with a meaningless title, or at the heart of power with the president’s ear. Much will depend on whether his boss gets sick of him.

Stay on top of American politics with The US in brief, our daily newsletter with fast analysis of the most important electoral stories, and Checks and Balance, a weekly note from our Lexington columnist that examines the state of American democracy and the issues that matter to voters.

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Economics

What a second Trump presidency will bring

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This is the introduction to The Economist this week, a free weekly newsletter that includes a note from our editor-in-chief, Zanny Minton Beddoes.

Zanny Minton Beddoes, our editor-in-chief, writes about this week’s cover package

The world has just witnessed a historic turn. Donald Trump’s election as America’s 47th president was not a fluke: his victory was decisive. By securing more than 70m votes, he has won the popular vote for the first time in three attempts. The Republican Party now runs the Senate and is likely, within days, to secure control of the House. Add that the Supreme Court will be firmly entrenched with MAGA values for a generation. All this constitutes a stunning comeback and provides a powerful mandate for Mr Trump; in our cover leader we call him the most consequential American president since Franklin D. Roosevelt.

Our weekly edition considers what a second Trump presidency means. If Mr Trump has wrecked the old order, what will take its place? Will the return of Trumponomics spark a global trade war? How will Mr Trump handle the conflicts in Ukraine and the Middle East? His sweeping victory could set the tone for fellow nationalist populists such as Marine Le Pen, who hopes to secure France’s presidency in 2027. Mr Trump was too easily dismissed as an aberration in his first term. Not now. He has defined a new political era, for America and the world.

Subscribers can now sign up to participate in our live digital event on Friday November 8th, where our editors will discuss the election’s aftermath and what comes next. I also recommend the US in brief, our daily newsletter devoted to the most important matters in American politics.

Wherever you live, Mr Trump’s presidency will affect you. Over the next four years, we will report on and analyse the effects of the second Trump presidency on policy, business, economics and more—in America and around the world.

I invite you to be a part of this. If you already subscribe to The Economist, thank you.

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