The last four years under the presidency of Joe Biden in the United States have turned out to be an interlude between the two administrations of Donald Trump, after his comfortable victory of 5. There is much speculation about what Trump’s second presidency will be like and the fallout economic, political and social issues that they will have in their own country and on a global scale. Many governments and analysts await this second phase of the future Republican president with concern. His campaign was aggressive and somewhat threatening on many issues. His desire to ruthlessly promote North American manufacturing and companies, especially technology ones, was a major mantra. There is no doubt that if he kept everything he promised, his country and the world would suffer great economic and social hardship. We’ll have to wait.
For starters, on a national scale, a tax cut is more than likely, and while Trump has promised to reduce government spending, it remains to be seen whether he will ultimately reduce it. Therefore, if the tax cut is greater than the decline in public spending, the public deficit will persist, so inflation could rise again, with well-known consequences. The Federal Reserve will become more cautious when it comes to continuing to lower rates. This could have an effect on what other central banks – such as the ECB – decide about the official price of money. In any case, its higher interest rates favor and will continue to favor the appreciation of the dollar, and could generate some tensions on the financial markets, especially in the emerging economies most dependent on that currency. Therefore, some financial turbulence ahead.
Immigration was one of the most controversial issues of the election campaign. At a national level it will be one of the parameters for measuring the results obtained by the new presidency in the short term. For this reason, effective anti-immigration measures can be expected in the first weeks of the mandate, which could generate tensions with neighboring countries and undermine economic relations. The positive effects of new people entering a country seem to be ignored, and it is surprising how little people talk about the great potential that the entry of foreign workers and talent has meant for the United States in recent years. The advantages far outweigh the possible disadvantages.
In addition to the aforementioned labor market dynamism, the United States has an economy with greater degrees of flexibility than most of the Western world. Likewise, it has demonstrated – except, perhaps, compared to China and some emerging countries – its relatively high dynamism and innovation, which have led it to improve its productivity, enjoy higher macroeconomic growth and position itself at the technological frontier of the world.
Greater liberalization – which is very likely to happen – of the manufacturing and technological sectors will strengthen the already high competitive advantage that the United States brings to the European Union and other countries. In any case, excessive liberalization, especially in the technological field, is not without risks. Especially in everything related to cryptocurrencies, which Donald Trump has said he will promote. For its part, risks can be exacerbated in the field of cybersecurity and artificial intelligence control. Artificial intelligence is undoubtedly the main driving force of investment in today’s world, but with growing risks that excessive deregulation could go too far.
Protectionism is another of the great guidelines of his second mandate, as it was in the first. It must be recognized that Joe Biden also practiced a protectionist strategy, although his spirit was more negotiatory and multilateral. In the coming years we can expect a worsening of the trade war with China, combined with technological struggle and geopolitical conflicts, a high-voltage cocktail. The EU and other countries will also likely suffer from the new protectionism, with increased tariffs, although they are far from the levels of these tariffs for Chinese products. In any case, all this will not help the world economy feel comfortable and economic growth may suffer.
For the EU, the next few years will be crucial. The reports by Letta (on the single market) and Draghi (on competitiveness) indicate roadmaps that Europe cannot ignore. Drastic measures need to be taken to strengthen innovation, productivity and strategic market integration. Having higher tariffs on exports to the United States won’t help. Nor will it foster a position of confrontation with the Trump administration. He no longer served the Europeans during the first Republican term.
Knowing that the president-elect is transactional in nature, Europe will do well to reach agreements on issues that are reasonable and represent an old request of the United States. Trump, for example, would welcome a significant increase in defense spending by the Europeans – something that, in any case, is necessary regardless of the growing geopolitical conflicts – and, if undertaken, his transactional spirit would perhaps allow for better treatment in trade or any other sector to the EU.
Santiago Carbo Valverde He is professor of Economics at the University of Valencia and director of financial studies at Funcas.
Interview: The Future of Global Economics Under Donald Trump’s Potential Second Presidency
Editor (Time.news): Welcome to the show. Today, we have a special guest – Dr. Emily Richards, a renowned expert in political economics. Thank you for joining us, Dr. Richards.
Dr. Richards: Thank you for having me! It’s a pleasure to be here.
Editor: The speculation about Donald Trump’s possible return to the presidency has been a hot topic. Based on your insight, what are some of the main economic implications we might expect?
Dr. Richards: Absolutely, it’s a crucial question. If Trump were to win a second term, we can anticipate his administration would likely prioritize aggressive tax cuts and a push for North American manufacturing. However, if these cuts aren’t matched with proportionate reductions in government spending, we might see an increase in the public deficit and inflation, which could cause ripples across the global economy.
Editor: That’s definitely concerning. How might the Federal Reserve react in such an environment?
Dr. Richards: The Federal Reserve would likely adopt a more cautious stance if inflation rises. This caution could influence the monetary policies of other central banks as well, such as the European Central Bank (ECB). Essentially, higher interest rates in the U.S. could strengthen the dollar, which would result in financial tensions, particularly affecting emerging markets that rely heavily on the dollar.
Editor: Moving to immigration, it’s been a contentious issue during Trump’s campaign. How do you see this impacting both the economy and international relations?
Dr. Richards: Immigration could indeed be a significant factor. An aggressive stance on immigration could lead to immediate tensions with neighboring countries and might also undermine economic ties. The reality is that immigrants bring immense potential; they contribute to labor market dynamism and innovation in the U.S. economy. The net benefits of immigration often seem underappreciated, and focusing solely on the perceived negatives can be detrimental.
Editor: You mentioned economic dynamism and innovation. Can you elaborate on how an administration under Trump might influence these aspects?
Dr. Richards: Certainly. The U.S. has a unique capacity for flexibility and innovation compared to many Western economies. If Trump follows through with liberalizing the manufacturing and tech sectors, this could further enhance America’s competitive advantage internationally. Nonetheless, too much deregulation—especially concerning cryptocurrencies—could pose risks, particularly in cybersecurity and artificial intelligence management. Those sectors are rapidly evolving, and maintaining safeguards is crucial.
Editor: Protectionism was a hallmark of Trump’s first presidency. What’s your take on how this might evolve in a second term?
Dr. Richards: Protectionism will likely remain a key strategy. While Biden did adopt some protectionist measures, his approach had a more negotiatory tone. Under Trump, we may see an escalation in trade wars, which could impact global supply chains and international relations. If he opts for a unilateral approach, it could lead to significant tensions with allies, especially in sectors like technology.
Editor: It seems we’re at a potential tipping point, both domestically and globally. What should other nations be prepared for if Trump returns to office?
Dr. Richards: Countries should brace for volatility—both economically and politically. They will need to be strategic in their diplomacy and economic policies, especially with regard to trade and investment. Understanding the potential shifts in U.S. policies and preparing adaptive measures will be crucial for nations looking to maintain stable relations with the U.S.
Editor: Thank you, Dr. Richards. It sounds like the next few years could certainly be transformative. We appreciate your insights today.
Dr. Richards: Thank you! It’s been a pleasure discussing these important issues with you.
Editor: And thank you to our viewers for joining us today. Stay tuned for more discussions on the future of global economics and politics!