The US president-elect’s policies are likely to be good for domestic growth – but rhetoric on trade is likely to have global implications

1. 10 economic consequences of
Donald Trump's election win
The US president-elect’s policies are likely to be good for
domestic growth – but rhetoric on trade is likely to have
global implications
For those of us who were wrong about the US
presidential election, it is worth suppressing emotional
reactions, at least for a month or two, and attempting a
dispassionate judgment about what Donald Trump’s
administration may mean for the world. So here are 10
likely consequences of the Trump presidency, divided
equally between the good and the bad.
The good news starts with US growth, which will almost
surely accelerate above the 2.2% average annual rate

2. during Barack Obama’s second term. This is because the
Republican aversion to public spending and debt applies
only when a Democrat like Obama occupies the White-
House. With a Republican president, the party has
always been glad to boost public spending and relax
debt limits, as it was under Presidents Ronald Reagan
and George W Bush. Thus, Trump will be able to
implement the Keynesian fiscal stimulus that Obama
often proposed but was unable to deliver.
The resulting deficits may be described as “supply-side
economics”, rather than Keynesian stimulus, but the
effect will be the same: growth and inflation will both
increase. As the US economy runs into the limits of full
employment, additional growth will push inflation
higher, but that bad news can wait until 2018 and
beyond.

3. Second, sensible tax reforms, such as an amnesty for
multinational companies that repatriate foreign profits,
will finally become law. The Republicans’ hegemony will
enable easy agreement on tax cuts financed mainly by
higher public borrowing, rather than by facing down
special interest lobbies’ resistance to the elimination of
exemptions and loopholes. These tax reforms will create
even bigger budget deficits, which in turn will stimulate
more growth and inflation.
A third boost to economic growth will come from
deregulation. While battles over energy and
environmental laws may dominate the headlines, the
biggest economic impact will come from reversing bank
regulations. As banks are encouraged to loosen lending
standards, especially for middle-income households, an
upswing in residential construction and debt-financed
consumption should add further growth impetus.
Excessive deregulation could cause a re-run of the 2007
financial crisis, but that, too, is a risk for 2018 and
beyond.
Fourth, Trump could be good for geopolitical stability,
at least in the short term. Trump’s preference for
transactional realpolitik over Obama’s liberal
interventionism should stabilise relations with Russia
and China as the world is divided into spheres of
influence. Trump could give Russia freer rein in Ukraine
and Syria in exchange for restraint in central Europe and
the Baltics. China’s inevitable dominance in Asia could

4. be accepted, provided it avoids outright wars with
Japan, Taiwan, and other countries whose security is, in
theory, guaranteed by treaties with the US. The Middle
East is bound to remain a cauldron of geopolitical unrest;
but, even here, Trump’s preference for local strongmen
over “democracy promotion” could restore a degree of
stability (at the cost of human rights).
Finally, Trump’s election could force Americans to
recognise flaws in their own democracy, even as they
abandon global “democracy promotion.” The fact that
Trump lost the popular vote by more than 2
million could re-energise efforts to reform the electoral
college – efforts that already have resulted in the
necessary legislation in states representing 61% of the
required votes. And the overwhelming opposition to
Trump in trend-setting states such as California and New
York could encourage their voters to elect legislatures to
counteract federal conservatism with progressive state
laws on issues ranging from air quality and health care
to abortion, treatment of immigrants, and gun control.
Now for the bad news. For the first time since the 1930s,
the US has a president who views trade as a zero-sum
game. Trump’s protectionist campaign rhetoric may not
have been meant literally, but if he fails to deliver any of
the trade curbs that he promised, Republicans will suffer
a backlash from what is now their core voter
constituency, voters in declining industries and regions.

5. US global leadership is therefore bound to shift away
from free trade, globalisation, and open markets.
Nobody can predict the full effects of the biggest regime
change in global economic management since the 1980s;
but they will surely be negative for emerging economies
and multinational companies, whose development
models and business strategies have assumed free trade
and open capital flows.
A second, more immediate, threat stems from enacting
large tax cuts and boosting public spending in an
economy already nearing full employment, which
implies accelerating inflation, higher interest rates, or
probably some combination of the two. Given the
likelihood of additional trade protectionism and
measures to remove immigrant workers, the increase in
inflation and long-term interest rates could be quite
dramatic. The impact on financial markets will be
disruptive, regardless of whether the Fed aggressively
tightens monetary policy to pre-empt rising prices or
lets the economy “run hot” for a year or two, allowing
inflation to accelerate.
With the US economy growing faster than expected and
long-term interest rates rising, excessive strengthening
of the dollar is a third major risk. Even though the dollar
is already overvalued, it could move into a self-
reinforcing upward spiral, as it did in the early 1980s and
late 1990s, owing to dollar debts accumulated in

6. emerging markets by governments and companies
tempted by near-zero interest rates.
Fourth, the combination of a dollar squeeze and
protectionism spells big trouble for developing
countries, with the possible exception of some relatively
closed economies such as Brazil, Russia, and India,
whose development strategies are less reliant on free
trade and foreign financing.
Finally, the most dangerous consequence of Trump’s
victory may be its contagion effect on Europe. Just as
Britain’s referendum proved uncannily predictive of
Trump’s win, Trump looks like a leading indicator of
populist upheavals in Europe, which could trigger
another euro crisis and threaten the breakup of the
European Union. The next anti-establishment victories,
according to opinion polls, will be in Italy’s
constitutional referendum and Austria’s presidential
election. Globalists can only hope that the polls again
turn out to be wrong – but in the opposite direction.
• Anatole Kaletsky is chief economist and co-chair of
Gavekal Dragonomics. A former columnist at the Times,
the International New York Times and the Financial
Times, he is the author of Capitalism 4.0, The Birth of a
New Economy.
https://www.theguardian.com/business/2016/nov/28/donald-trump-economic-consequences-us-
election-growth