What would a second Trump presidency mean for the global economy?

Donald Trump inherited a strong economy from President Obama and managed it poorly.

Real GDP grew more slowly under Trump than it had under any president since the second world war. He was the only president since then to preside over a fall in the number of workers with a job.

In 2016, the United States (US) economy was the world’s largest; by 2020 China’s was more than 10% bigger.

Trump’s economic policies

Would a second Trump presidency be any better? Hopefully, there will not be another pandemic for him to mismanage. But his policies suggest the economy would again do poorly.

Admittedly, it is hard to be sure about the policies Trump would adopt in a second term as his record of implementing his promises is so poor. Mexico never paid for a border wall. Hillary Clinton was not locked up. And I doubt many Americans were “tired of winning”.

The provision of policy detail has not been a defining feature of Trump’s rallies. There is a lot of detail in the 900 pages of Project 2025, produced by right-wing think tank the Heritage Foundation and whose writers include many former Trump advisors.

But Trump has disowned it. On his social media site he said both that “I disagree with some of the things they’re saying” and “I know nothing about Project 2025”.

Trump and Elon Musk

In businessman and investor Elon Musk’s rambling conversation with him on X, Trump had little to say about economics beyond not taxing tips. The moderators in the debate with Harris did try to elucidate more about his economic plans but it was a struggle.

To Musk, Trump claimed there is a “disaster with inflation”, which he falsely claimed was the worst in a century. In his debate with Harris, he was even more inaccurate calling it “probably the worst in our nation’s history, we were at 21%”.

Actually inflation had been higher in the 1970s than the peak of 8% under Biden. Inflation is now down to 2.5%.

He promised to end inflation quickly, but did not say how. He claimed a “drill, baby, drill” policy would cut petrol prices, an odd priority when talking to an electric car maker. And this would take years to have any impact.

In the debate he claimed he would “cut taxes very substantially”. Which taxes, he did not say, but his record suggests it would be taxes on the rich. Nor did he say what spending he would cut to fund the tax cuts, or whether he would just allow the government debt to expand further.

He has threatened the independence of the Federal Reserve, which could lead to interest rates being higher as expectations of inflation rise.

Policies or ‘concepts’?

Eight years after he campaigned for president criticising Obama’s health care arrangements, all Trump could offer as an alternative at the debate was “concepts of a plan”.

The clearest policy he has announced is more tariffs. He has proposed an across-the-board tariff of 10%, or perhaps 20%. For China they would be 60% or more.

The clear result would be American households paying much more for basic goods. Many goods US households buy are imported and US manufacturers import raw materials and components for the goods they make and machinery to make them.

It is likely many countries on which Trump imposes these tariffs will retaliate, making it harder for US exporters.

IMF modelling estimated the impact of Trump’s previous trade policies was to cut US (and global) GDP by around half to 1%. But now he is proposing much higher tariffs.

US and trade deficits

Trump is almost as fixated about the size of trade deficits as he is about the size of crowds at his rallies. But in his term as president, notwithstanding his tariffs, the US trade deficit was not narrowed.

Another way Trump would damage US trading interests is his impact on their “soft power”. He is very unpopular in many countries. A Trump-led US would likely attract fewer tourists and international students.