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US election: Why a Trump presidency would be bad for the world economy

If ‘President’ Donald Trump acts on what Candidate Trump has promised on the Republican Party campaign trail, it would be bad news for the world economy

us presidential election Updated: Nov 08, 2016 09:03 IST
Pramit Pal Chaudhuri
Republican US presidential nominee Donald Trump holds a picture of himself a supporter handed to him as he departs after rallying at an arena in Manchester, New Hampshire, US.
Republican US presidential nominee Donald Trump holds a picture of himself a supporter handed to him as he departs after rallying at an arena in Manchester, New Hampshire, US.(Reuters Photo)

Global stock markets became queasy when Donald Trump seemed to be closing in on the United States presidency just a few days ago. But a President Trump who enacts what Candidate Trump promised on the Republican Party campaign trail would be bad news for the world economy in more fundamental ways.

Stocks would all fall the day Trump is elected. The Brookings Institute believes US stocks would fall a dramatic 10 to 15%. Most analysts predict a fall, but about half that.

But shares could rebound. A US Federal Reserve chairman, Janet Yellen, would probably put off December plans to raise interest rates to absorb the Trump shock.

As London-based investment consultancy Capital Economics noted, “A Trump presidency would presumably mean monetary policy staying looser for longer, which would be positive for the stock market.”

The real damage would be what Trumponomics would do to the US economy – and the world economy in tandem.

Moody’s Analytics collected all of Trump’s economic policy statements, plugged them into a model of the US economy and published the results.

Republican US presidential nominee Donald Trump gets smiles from his sons Eric Trump (L) and Donald Trump Jr. (R) as they leave him to take the stage to rally with supporters at an arena in Manchester, New Hampshire. (REUTERS)

They described a US which would cut immigration and trade ties to the world, especially China and Mexico, scaring away foreign investors. However, to fulfil his electoral promises of lowering taxes and increasing social and military expenditure, Trump would also blow a hole in the US government’s finances.

The US economy would boom as all that government spending poured into the system, but the resulting debt burden and a falling dollar would force the country into recession. “The economy will suffer a recession that begins in early 2018 and extends into 2020,” said the report. The only group that would benefit would be high-income earners – like Trump himself.

Read| Trump or Clinton: Poor choices for America in this presidential election

India might get some minor benefits from a Trump presidency. If he imposes the 45% tariff on Chinese goods that he has proposed, other countries would fill in the import vacuum created in the US. Even then, Southeast Asia was more likely to benefit than India.

However, India would lose out much more from a President Trump because of the damage he would inflict on the global economy.

A US in recession would take much of the world along with it, crimping trade, investment and growth across the board. That wouldn’t even count the damage his anti-immigrant stand would do to the Indo-US bilateral relationship. For an India whose economic trajectory is inching upwards, a Trump presidency would constitute the sort of pointless risk that New Delhi would prefer to avoid.

Professional economists are suitably horrified. In an August survey 414 economists of the US’s National Association for Business Economics picked Libertarian Party leader, Gary Johnson, an extreme proponent of free markets, over Trump when asked which candidate would best manage the economy. Trump got 14% in favour. \

Read| Why 2016 could end up as the year when the elections lied

For full coverage on US presidential election, click here