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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.

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“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.

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“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.”

Economics

The White House has been fluid on gender for a decade

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ON THE FIRST day of his second term, President Donald Trump signed an executive order titled “Defending Women from Gender Ideology Extremism and Restoring Biological Truth to the Federal Government.” The document marks a sweeping rollback of policies instituted during the Biden administration pertaining to sex, gender identity and transgender rights.

First, the order states that the federal government will henceforth use the traditional, biologically based definitions of terms like “male” and “female”. Then it calls for “gender ideology”, defined as the belief that someone’s subjective “gender identity” can trump their biological sex, to be in effect banished from the federal government: “Agencies shall remove all statements, policies, regulations, forms, communications, or other internal and external messages that promote or otherwise inculcate” this notion, “and shall take all necessary steps, as permitted by law, to end the Federal funding of gender ideology.”

Among other likely consequences of this edict, prisoners in federal custody who were born male are now to be housed in male prisons, regardless of their gender identities, and cut off from access to gender medicine by the order’s ban on federal funding. Transgender folks who have changed the markers on their passports to reflect their gender identities will probably have to change them back the next time they renew. On paper the order brooks few exceptions to its strict approach, describing as “false” the “claim that males can identify as and thus become women and vice versa”.

That being said, executive orders are not laws, and they can be blocked by the courts if they fall foul of existing legislation or the constitution. The most likely result is that some parts of “Defending Women” will be implemented and others held up or fully stymied by court challenges. A spokesperson at GLAD Law, an LGBT civil-rights organisation that plans on challenging the order, noted that every government action “must at a minimum have a valid non-discriminatory purpose and may be subject to a more exacting standard depending on the circumstances”, including “government actions based on animus toward a particular group”. So it is unclear how much power Mr Trump has to draw the boundaries of sex and gender.

However, on the single most important question animating all these issues—how the government defines “sex” in the first place—it is clear that nothing in Mr Trump’s executive order will permanently settle what has become a white-hot dispute.

Title VII of the landmark 1964 Civil Rights Act grants Americans protection from employment discrimination on the basis of a number of different categories, including “sex”. A later amendment, Title IX, outlaws such discrimination in federally funded educational settings. Nowhere in the law, however, is this term actually defined. According to Leor Sapir of the conservative Manhattan Institute, whose doctoral work focused on Title IX, the traditional understanding of sex has generally prevailed in federal civil-rights litigation, though there were cases under Title VII in which courts were open to the possibility that sex could mean or include a person’s self-conception.

That consensus began to crack in around 2010. “During the Obama Administration, the federal bureaucracy tried to rewrite the meaning of ‘sex’ in American civil-rights law through a convoluted administrative and judicial process, in co-operation with a number of federal judges,” Mr Sapir says. In May 2016 the administration published a so-called “Dear Colleague Letter” instructing public educational institutions to “treat a student’s gender identity as the student’s sex” when interpreting Title IX, meaning that if a student said they were a boy or a girl, they should be legally treated as one. This included allowing transgender students access to school facilities corresponding to their gender identity, with an exception for single-sex sports teams. This was one of the executive branch’s more important early attempts to change the definition of “sex” in a manner that would bring transgender people under pre-existing civil-rights protections.

It was short-lived, however. A federal court suspended enforcement of the letter on the grounds that it violated proper administrative procedure. About six few months later the newly inaugurated Trump administration revoked it anyway.  Then in 2021 Joe Biden arrived ready to continue the process President Obama had started. In an executive order on his first day in office—now rescinded by Mr Trump and deleted from the White House’s website—Mr Biden laid out an agenda for protecting trans rights. His administration made a concerted effort, on multiple fronts, to embed a more expansive definition of “sex” in the federal government, but now Mr Trump appears poised to undo as much of it as possible. Even before Mr. Trump’s inauguration, just two weeks before Mr Biden and his team departed, a federal judge in Kentucky struck down their new rules extending Title IX protections to transgender students.

All of this, has led to what Doriane Coleman of Duke University School of Law described as a severe “whiplash” effect, with the government’s understanding of sex swinging wildly back and forth depending on the current administration’s policy preferences and, in some cases, the latest court rulings. While there is a strong possibility this whiplash will continue, there are two relatively straightforward—albeit unlikely—ways for the government to resolve it in a more durable manner.

First, Congress could simply pass a law finally codifying a specific definition of sex. In fact Mr Trump’s order instructs the White House’s legislative office to draft such a bill. That effort faces long odds, however: 60 senators would have to vote for the bill. Here, too, there’s a form of whiplash: in much the same way that Mr Trump’s order is something of a mirror-image of Mr Biden’s, the Democrats took their own shot at codifying their preferred understanding of sex via the Equality Act, which passed the House but could get no further. It would have explicitly defined sex as including gender identity, supplanting the traditional understanding of the term.

A Supreme Court decision could also partially dispel the government’s confusion over sex. According to Mr Sapir, there are about half a dozen cases concerning gender identity that SCOTUS can take up if it so chooses, concerning issues ranging from sports teams to free speech. While it is unlikely any of these cases will lead to a sweeping ruling settling the matter in its entirety, according to Mr Sapir, they could at least provide durable guidance as to how the government should understand sex in certain contexts. But unless and until such a resolution occurs, whether through Congress or the Supreme Court, the game of government fluidity on gender, already almost a decade old, is likely to continue.

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Economics

A controversial idea to hand even more power to the president

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LEADING THE Office of Management and Budget (OMB) may sound mundane, but the role is one of Washington’s most important. Russell Vought, who did the job for the final two years of Donald Trump’s first term, is poised to return. After a confirmation vote planned for the coming days, he is expected to test the bounds of presidential power as the new administration tries to reshape the federal government.

In his confirmation hearing on January 15th, Mr Vought told senators he would follow through on Mr Trump’s vow to pursue “impoundment”. This is the practice of presidents refusing to spend funds that Congress has appropriated, shifting power to the White House. To take a current example, Mr Trump has issued an executive order putting an “immediate pause” on billions of dollars appropriated under the Inflation Reduction Act of 2021 and a climate law from 2022. No money will go out for current projects—including new roads, bridges and electric-vehicle charging stations—until the administration decides which efforts are “consistent with any review recommendations” Trump officials “have chosen to adopt”. The same applies to military aid for Ukraine.

Mr Trump ran “on the issue of impoundment”, Mr Vought said at his hearing, and “200 years of presidents have used this authority”. He said the Impoundment Control Act (ICA) of 1974, passed to rein in presidents after Richard Nixon held back billions of dollars for education, the armed forces and the environment, was unconstitutional. (It is one of several Watergate-era constraints on the presidency that Mr Trump wants to be rid of.) His inner circle is speaking as one on the matter. In an op-ed in the Wall Street Journal after the election, Elon Musk and Vivek Ramaswamy wrote that Mr Trump could cut federal spending “through executive action alone”.

During Mr Trump’s first term Mr Vought participated in the freezing of $214m in military aid for Ukraine—an impoundment that led to Mr Trump’s first impeachment in 2019. In his hearing this month, Mr Vought noted the funds were eventually released after a “policy process” carried out by the administration. He repeated that phrase (a justification for blocking funds deemed incompatible with a president’s policies) five times during his two-hour appearance before the committee.

Mr Vought’s colleagues at his think-tank, the Centre for Renewing America, made the constitutional and historical case for impoundment in a pair of blog posts and a white paper last year. The primary author, Mark Paoletta, was the top lawyer at the OMB in Mr Trump’s first term and has been tapped for that post again. Impoundment is a “key tool”, Mr Paoletta writes, “to ensure that the constellation of congressional funding measures are implemented in a lawful and reasonable manner that ensures good governance”. The authority flows, he argues, from several corners of the constitution, including a clause in Article II requiring presidents to “take care that the laws be faithfully executed”. “[I]f an appropriation violates the constitution”, Mr Paoletta declares, “the president may impound it.”

Presidents have been impounding for centuries, says Mr Paoletta. In 1803, Thomas Jefferson opted not to spend $50,000 Congress pegged for gunboats on the Mississippi. Franklin Roosevelt impounded extensively during the Depression and the second world war. Harry Truman delayed spending funds meant for veterans’ hospitals. John Kennedy impounded nearly half of the $380m Congress appropriated for the B-70 strategic bomber. In sum, Mr Paoletta claims, “Congress’s power of the purse” has always been intended to establish a “ceiling” for executive spending, never a “floor”.

Zachary Price, a law professor at the University of California at San Francisco, counters that “the president has no constitutional power of impoundment”. Jefferson’s unbought gunboats had been funded by a law that “authorised expenditure without requiring it”, Mr Price points out. In the words of the statute, the president could buy “a number not exceeding fifteen gun boats” using “a sum not exceeding fifty thousand dollars”. This built-in discretion was common in statutes for decades. And even when the language grew less flexible, Mr Price explains, Congress usually allocated funds in a “permissive rather than mandatory” way. Until Nixon, impoundments “did not involve any assertion of constitutional authority to act contrary to congressional directives”.

The ICA made this norm binding. When a president wishes to delay an expenditure he must send a special note informing Congress and must spend the money by the end of the fiscal year. He cannot cancel a payment outright without Congress’s explicit approval. Eloise Pasachoff, a law professor at Georgetown, sees little basis for challenging the constitutionality of the ICA. In 1998, the Supreme Court struck down the line-item veto—impoundment by another name—because it permitted presidents to usurp Congress’s authority. Even the archconservative Justice Antonin Scalia, Ms Pasachoff points out, “literally rejects impoundment theory” in his separate opinion in that case.

Some members of Congress favour repealing the ICA. Mike Lee, a senator from Utah, derides the act as a “Watergate-era relic” and in December introduced legislation to do away with it. But there are not enough votes to pass such a law. That leaves the courts as the best avenue for Mr Vought and Co to get their way.

Who might fight back in court? Not disgruntled lawmakers, as individual members of Congress do not have standing to sue. Ms Pasachoff says there are plenty of potential plaintiffs: states, cities and defence contractors, for example. Any actual or potential recipients of funds competing for contracts or applying for grants—in fields like information technology or construction—could get to court by showing the president’s tight-fistedness harmed them. But establishing “standing” (the right to bring a claim in court) may not be so easy, Matt Lawrence of Emory University says, as there are “significant barriers to judicial review of spending decisions”.

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Economics

Trump revives McKinley’s imperial legacy

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This is the introduction to Checks and Balance, a weekly, subscriber-only newsletter bringing exclusive insight from our correspondents in America.

James Bennet, our Lexington columnist, considers Donald Trump’s threats in historical context

Donald Trump may be bluffing about tariffs, but as you might expect The Economist is concerned about the possibility he will eventually impose them. As we put it in our article, “It is hardly necessary to say that with legislation of this kind we have no sympathy whatever. In our view it is as mistaken as it is certain to prove mischievous.”

Oh—whoops—my mistake: that’s not from our tariffs piece from this week. It’s from the one we published in 1890 opposing a tariff scheme proposed by William McKinley, a congressman from Ohio who would subsequently be elected governor and then president. During his inaugural address on Monday Mr Trump invoked McKinley as a role model. (By the way, McKinley eventually changed his mind on tariffs and also came to lament America’s costly acquisition, on his watch, of the Philippines.)

Though we opposed McKinley’s tariffs, we went on in that article to criticise “the protectionist nations of Europe” for complaining. “The American people have a right to regulate their fiscal affairs in whatever manner they think best, and for us to resent as an insult the exercise of that freedom because it clashes with our interests is foolish and absurd,” we wrote. “Such a display of temper will only aggravate the evil. It will play into the hands of the protectionists, who will contend that the success of their policy may be measured by the irritation it causes here.” 

I admire the fair mind and long view The Economist brought to that matter, and I hope that, like me, you’ll recognise the same qualities in our cover leader this week about the start Mr Trump has made on his second term. Forgive me for sounding like a company man, but in this era of institutional drift and disorientation I feel lucky to work at a place with such proven ballast and sense of direction.

Of course, historic precedents only get you so far: we can’t expect to rerun the experience of the McKinley years. America in the 21st century is not the America of the end of the 19th, as our (new) leader says. With his sweeping amnesty for the January 6th convicts, his new cryptocurrency, his defiance of the bipartisan law to the force TikTok’s divestiture and his vision to extend America’s dominion not just into Central America but across the solar system, Mr Trump is asserting new latitude and new powers for the imperial presidency that will test the republic’s checks and balances.

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