Global Econ-Insights #4: Trump’s Treasury

Donald J. Trump: profiteering persecutor, or economic exemplar? With the man who has been America’s greatest bane for some and knight in shining armor for others over the past decade recently being re-elected, there is no better time than now to unpack the economic implications of his second term of presidency. From analyzing Trump’s last several speeches, policy decisions, campaign actions, and even humorous gestures, I can confidently say that Trump’s presidency will likely have strong global financial consequences in regard to numerous major monetary policy mechanisms.

There are numerous tax policies which Trump has promised to implement. While pushing his economic and political agenda from 2025 onwards, Trump has proposed upwards of a 60% tariff on Chinese imports and 10% to 20% tariffs on imports from all other countries. Trump’s significant inflation of the tariff percentage for China reflects his Western biases and anti-oriental political views. By deliberately putting nations like China at an economic disadvantage among the United States’ multilateral relations, he is undeniably attempting to keep the U.S.’s hegemony while putting a strong power clamp over China’s power. This, in his mind, is the key to the U.S. reigning supreme in the global economy. Additionally, his anti-immigration tactics shine through via his announcement of a 25% tariff on imports from Mexico and Canada, the two nearest nations known for “burdening” the U.S. with large asylum-seeking numbers. What he doesn’t seem to realize is the broad-based economic implications of his own proposed tax and tariff policies. Domestically, these drastic increases in tariffs are predicted to significantly increase inflation across the entire U.S. These localized consequences will then trickle down into a domino-effect-like phenomenon which will likely inhibit economic growth in all major foreign countries that depend on American consumers for a significant chunk of their own fiscal revenues. Then, inflation will decrease as these American consumers become less willing and able to purchase foreign goods, and this will have a disproportionately harmful effect on China, especially due to the vast importance of the manufacturing sector to its economy, weakening the value of the Chinese yuan just as Trump intends. 

While Trump’s anti-oriental rhetoric will most certainly translate into strong hegemonic economic policies on the part of his administration, certain subsets of foreign countries, particularly those in Europe, will likely suffer less by comparison. The U.S. inflation impact on the European economy will be minimal, as exports only make up around 3.2% of the continent’s overall GDP. Even with such high tariff increases, Europe’s service sector makes up 80% of its GDP, and this particular industry is known to be especially invulnerable to economic shocks from such monetary policies.

With that in mind, it must be made clear that Canada, Mexico, and China must watch out for Trump’s new trade penalties. According to Wending Zhang of Cornell University, Canada and Mexico would still feel the impact of these shocks to their economies much more severely than China due to their relative overreliance on the American consumers’ market. Trump himself told reporters, “You see the power of the tariff. Nobody can compete with us because we have by far the biggest piggy bank.” Trump is hedging his bets that raising such tariffs will not have major negative inflationary effects on the U.S. economy, yet it should be clear that even if it does, his political tactics will likely enable him to evade any sort of blame game that would potentially put himself at fault for such financial harms to the country. Either way, it is time for foreign countries to start gearing up for what could be an economic resource war, and thankfully, that is exactly what they are doing right now.

Former Canadian Prime Minister Justin Trudeau is endorsing a $900 million border plan to help Ottawa prepare to respond to Trump’s retaliatory tariffs and counteract the effects of U.S. penalties. Similarly, Mexican President Claudia Sheinbaum has publicized her intentions to reduce illegal border crossings and combat the illicit fentanyl trade around the U.S.-Mexico border. She is also vocal about her preparations to respond to Trump’s tariffs, citing a “Plan A, Plan B, [and] Plan C for what the United States government decides.” 

In conclusion, while the Democrats are currently working to use the legislative process as a means of hampering Trump’s ability to impose these tariffs without the endorsement of Congress, we still need to do more. Beating Trump from the inside out is politically infeasible when the current makeup of the Congressional body is far Republican-leaning in both the House and Senate. The better strategy, in my opinion, would be to independently advise and facilitate the preparations of foreign countries like China, Mexico, and Canada to prevent the potentially globalized harms of such large-scale economic shocks resulting from Trump’s proposed trade, tax, and tariff policies.