During the 2020 electoral campaign, Donald Trump highlighted the strength of the American economy. This year again, the question of economic health remains at the center of debates, with particular attention paid to inflation and high interest rates, which remain major concerns for American citizens.
Should the former President return to the White House, three themes are expected to feature prominently among his economic priorities:
Tax cuts
According to Richard Stern of the Heritage Foundation, a Trump re-election would place the consolidation of tax reform at the top of the agenda. However, pressure is mounting to reduce deficits, especially with high interest rates. Steven Hamilton anticipates a compromise between the policies of 2016 and those of 2017.
Trade wars and tax cuts will remain at the core of Trump’s economic agenda, according to Ben Ritz of the Progressive Policy Institute. He points out that while Trump claims this benefits Americans, it could increase the national debt, raise borrowing costs, and isolate the country on the international stage. The delicate balance between economic ambitions and financial reality looks set to be a major challenge.
Tariffs
In August, Donald Trump sparked debate by proposing a 10% tax on foreign companies operating in the United States. The stated objective is to pay down the national debt. Currently, average tariffs stand at 3.4% according to the WTO, but uncertainty persists regarding the relationship between this new tax and existing tariffs.
Marcus Noland, Vice President of the PIIE (Peterson Institute for International Economics), sees this proposal as the starting point for a potential “trade war”. He expresses concerns about a deterioration of the international trading system and further damage to the WTO.
As consumers continue to face persistent inflation, higher customs duties could worsen the situation, driving up the prices of imported goods. China remains a major concern for Trump, adding to the uncertainty surrounding international economic relations.
Steven Hamilton of George Washington University highlights the “many unknowns”. He observes that Trump appears focused on a potential trade war with China, adding yet another layer of uncertainty to international economic relations. In short, this proposal opens a Pandora’s box with global implications.
A counterattack against environment-related sectors
Under a Donald Trump presidency, electric vehicles and solar panels risk losing their appeal. Despite the Inflation Reduction Act (IRA) allocating $370 billion to clean energy in the summer of 2022, the Trump administration, according to Republican advisers cited by the Financial Times in November, seeks to minimize the impact of this initiative by aiming to “maximize fossil fuel production”.
This approach raises concerns for Ben Ritz of the Progressive Policy Institute, who believes it could strangle a green technology industry stimulated by the IRA. Conversely, on the conservative side, Richard Stern of the Heritage Foundation argues that “even for those fighting climate change, the right thing to do is to get rid of the IRA.”
According to Stern, the Biden administration’s plan risks wasting billions of public and private dollars to support inefficient technologies. In summary, clean energy faces significant headwinds under a Trump administration, with attempts to dismantle measures designed to boost this rapidly expanding sector.
American protectionism: Possible global economic repercussions
Faced with the rise of protectionism, other nations are considering retaliatory measures, warns one economist. The US Chamber of Commerce also anticipates painful repercussions at the congressional district level.
In August, Donald Trump sparked debate by proposing a 10% tax on foreign companies in the United States, a measure he claims could pay down the national debt and consolidate the 2017 tax cuts. Despite current average tariffs of 3.4%, uncertainty persists regarding the relationship between this new tax and existing tariffs.
Economist Marcus Noland sees in this proposal the starting point for a potential “trade war”, expressing concern over a deterioration of the international trading system and damage to the WTO. This proposal, combined with persistent inflation, could worsen the situation for consumers by driving up the prices of imported goods.
Furthermore, a potential trade war could impact the energy market. Since the war with Russia, the United States has been supplying a significant volume of gas to Europe. An intensification of protectionism under Trump could prompt other nations to reduce their energy purchases, thereby reigniting the European energy crisis.
In short, Donald Trump’s economic proposals could trigger an explosive combination of international retaliation, opening a Pandora’s box with global implications. The uncertainties surrounding a potential trade war and shifts in energy trade loom large over international economic relations.
The economy under the shadow of political uncertainty
The current surge in political uncertainty is having notable repercussions on the economic front, as highlighted by Christophe Blot. Indeed, uncertainty, often amplified beyond reality, plays a dominant role in economic fluctuations, as Anne-Sophie Alsif reminds us. If this uncertainty persists, it could jeopardize investment and the expansion ambitions of European companies, particularly if Donald Trump follows through on his rhetoric and withdraws military aid to Ukraine in the name of restoring peace, as suggested on Fox News.However, it is crucial to note that the economic landscape is closely tied to political developments. As Donald Trump approaches the inauguration and a potential final showdown with incumbent President Joe Biden, each step of the process, including “Super Tuesday” on March 5th, with a third of US states at stake, carries economic implications. In the event of an electoral victory, Trump’s proposals would need to obtain Congressional approval, adding a further layer of uncertainty regarding the economic future. Thus, in this constantly evolving context, the economy remains deeply intertwined with politics, creating a complex landscape to navigate.
