Economics
What Trump’s historic election victory means for the global economy
A worker is making textile export orders at a production workshop of a textile enterprise in Binzhou, China, on July 8, 2024.
Nurphoto | Nurphoto | Getty Images
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.
“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.
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.
“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.”
FOR THE third presidential election in a row Donald Trump has stumped America’s pollsters. As results came in on election night it became clear that polls had again underestimated enthusiasm for Mr Trump in many states. In Iowa, days before the election a well-regarded poll by Ann Selzer had caused a stir by showing Kamala Harris ahead by three percentage points. In the end, Mr Trump won the state by 13 points.
Overall, the polling miss was far smaller. Polls accurately captured a close contest in the national popular vote and correctly forecast tight races in each of the battleground states. National polls erred by less than they did in 2020, and state polls improved on their dismal performances in 2020 and 2016. Yet this will be little comfort to pollsters who have been grappling with Mr Trump’s elusive supporters for years.
The Economist’s nationwide polling average found Kamala Harris leading by 1.5 percentage points, overestimating her advantage by around three points (many votes have yet to be counted), compared with an average error of 2.7 points in past cycles. State polling averages from FiveThirtyEight, a data-journalism outfit, had an average error of 3.0, smaller than the average of 4.2 points since 1976.
But in contrast to 2016, when pollsters’ misses were concentrated in certain states, those in this cycle were nearly uniform across state and national polls. In the seven key states, polling averages underestimated Mr Trump’s margin by between 1.5 and 3.5 points (see chart). Pollsters may claim that their surveys captured the “story” of the election. But the awkward question remains: why did they underestimate Mr Trump for the third cycle in a row?
In past election cycles, pollsters have tweaked survey “weights” to make their samples of voters more representative. Although polls aim to sample the population randomly, in practice they often systematically miss certain groups. Weights are used to increase the influence of under-represented respondents. This has been especially true in recent years as response rates have plummeted.
After the 2016 election, when surveys systematically missed voters without college degrees and therefore underestimated support for Mr Trump, pollsters began accounting for respondents’ education levels. And after 2020, in an effort to ensure that Republican voters were represented, more pollsters began weighting their samples by respondents’ party registration and self-reported voting history. This caused the range of poll outcomes to narrow (weighting reduces the variance of survey results), with many pollsters finding similar results in key states and nationwide.
If there is a lesson from this year’s election, it could be that there is a limit to what weighting can solve. Although pollsters may artificially make a sample “representative” on the surface, if they do not address the root causes of differential response rates, they will not solve the underlying problem. They also introduce many subjective decisions, which can be worth almost eight points of margin in any given poll.
A pollster which gets those decisions right appears to be prophetic. But with limited transparency before the election, it is hard to know which set of assumptions each has made, and whether they are the correct ones. To their credit, the pollsters get together to conduct comprehensive post-election reviews. This year’s may be revealing. Still, without a breakthrough technology that can boost the representativeness of survey samples, weighting alone is unlikely to solve pollsters’ difficulty in getting a reliable read on what Trump voters are thinking.■
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