Economic analysts warn of the possibility that global inflation could re-ignite as former president Donald Trump prepares for another possible term at the White House.
Trump’s America-first policy, which is characterized by low taxes and high tariffs, could lead to increased inflation in both the United States as well as internationally.
Trump’s economic nationalalism may be bad for the economy
Trump’s presidential first term was marked with aggressive nationalism. This could intensify if he wins a second term.
Michael Metcalfe is the head of State Street Global Markets’ macro strategy. He says that today’s economic climate has changed dramatically since Trump took office.
Metcalfe says, “At that time, the inflation rate had been very low and expectations of inflation were also quite subdued.”
In 2024 or 2025 we will be dealing with higher inflation levels and expectations. This is all part of a continuing inflation mindset.
The scenario below suggests that Trump’s policies may further increase inflationary pressures. This could impact not only the domestic market but have ripple effects across all global economies.
Tariffs and taxes in global trade
Trump’s core economic strategy is to impose high tariffs on imports and cut domestic taxes. Tariffs are inflationary because they raise the price of imported goods, and allow domestic producers to increase their prices.
Tax reductions may also boost spending by consumers, increasing prices due to an increased demand.
Trump and the current president Joe Biden both hinted that they would increase tariffs against China in response to escalating tensions.
A poll conducted by economists indicates that the inflation rate is more likely to increase under Trump, due to his protectionist approach, than it would be for Biden. Biden’s inflationary pressures could stem from spending plans.
Market responses and international impacts
A second Trump presidency could lead to higher inflation outside the United States. Gareth Nicholson, of Nomura in Asia, believes that a Trump Presidency could have a negative impact on the stocks within Asia.
It will be an inflationary force for the world economy. Stagflation could even result. And it may accelerate supply chain shifts within Asia.
Goldman Sachs predicts in Europe that an increased Trump tariffs could affect global trade dynamics and add only a 0.1 percent point of inflation.
Marc Franklin, of Manulife, also views Trump’s possible policies as “somewhat a reflationary mixture” because he is inclined to further cut taxes and revisit Chinese tariffs.
It could be a sign of higher inflation expectations, and therefore higher rates.
Market reactions and political stability
Trump’s recent campaign gained steam, especially after his appearance at Republican National Convention Milwaukee.
Trump’s resurgence follows an attempted assassination at a Pennsylvania rally, which he miraculously survived. He showed resilience and defiance.
The U.S. Stock Markets reacted positively following this to the improved prospects of the Republican candidate who is pro-business.
Analysts warn that the market’s enthusiasm may be short-lived because of Trump’s geopolitical and protectionist agendas. These could undermine global economic stability.
A second term by Donald Trump could have significant economic consequences, including increased inflationary pressures at home and abroad.
The prospect of Trump’s presidency highlights the importance for policymakers and markets to be prepared for changes in the dynamics of trade, taxes, and inflation.
The post Donald Trump’s second term as President could have a significant impact on inflation. This post may change as new information unfolds
