Donald Trump and his impact on the US economy

Donald Trump and his impact on the US economy
Donald Trump and his impact on the US economy

The US election is just around the corner and Donald Trump seems to be in the lead. But which candidate is actually better for the economy?

All the lamentations about the inadequacies of the two candidates are of no use – according to all available data, Donald Trump is the favorite for the upcoming US elections. , and since then he has been even more so: If the Democrats do not pressure their own president to give up, then Trump will win this election, and Joe Biden will have been his most important campaigner.

This makes it all the more important to now look at Trump’s ideas and plans.

Admittedly, he has not yet presented a real election manifesto, but here and there, including yesterday, he has indicated what he would implement if he were to move into the White House again: He promises a much more rigid immigration policy combined with more deportations of foreigners already living in the USA who do not have legal residency permits. He also promises a massive increase in import tariffs – for example, a tariff of ten percent on practically all imported goods, and significantly higher on Chinese goods. In return, he wants to reduce taxes, he would prefer to abolish income tax altogether and he would also like to reduce corporate taxes again.

Impact on the economy

Of course, Trump doesn’t say what all this would cost and how he plans to finance it, given the already horrendous budget deficit (GDP). But he didn’t care about public finances during his first term in office either (nor did his successor).

A study by the US rating agency Moody’s, which was published in the USA a few days ago, therefore makes for very exciting reading. On 34 pages, the experts analyze the effects of the election promises of the two opponents on the US economy and at the same time assign certain probabilities of occurrence (- the download is free, you just have to register. But it’s worth reading). The economists – even before the TV debate – considered a narrow election victory for Biden and a sweep of the Republicans under Trump, including both houses of parliament, to be roughly equally likely.

So, what would be the economic consequences of a Trump election victory? For large parts of the US economy and the rest of the world, they would be pretty bleak: With the introduction of further import tariffs, Moody’s experts are predicting a sharp rise in US inflation for next year – from around 3 percent today to 3.5 to 4 percent. Closing the US southern border and increased deportations would dramatically worsen the labor shortage in many sectors of the US economy and further increase wage pressure – this would also drive inflation.

The renewed rise in inflation would put a strain on US consumption, which is crucial for the country’s overall economic situation. Moody’s analysts expect the US economy to slide into a slight recession as early as the second half of 2025 – which would be quite a crash given the current growth rate of two to three percent this year. On the other hand, the tax relief would stimulate the economy – but if the labor shortage worsens, this would only fuel inflation even more.

Unexpected losers for Donald Trump

The response of the US Federal Reserve would be completely uncertain in this situation. Fed Chairman Jerome Powell’s contract runs until 2026 – Donald Trump, who once appointed him himself, was unhappy with him during his first term in office. Trump himself favors a loose monetary policy, but given the inflation prospects caused by Trump’s tariffs and his immigration policy, the Fed would have to raise interest rates. If that were to happen, it would be a further setback for the economy.

The losers of such a policy would be Trump’s most loyal voters: all those who have little or nothing today and are hoping that at least Trump will bring them a little more prosperity and the prospect of the old glorious America back. In reality, however, with a President Trump they will probably have even less in their pockets than they do today.

Trump’s critics in the US are already waving the paper and arguing that . But this reveals another weakness of the incumbent: Biden can hardly attack Trump on these points, since he is pursuing a similarly protectionist course in trade policy, especially towards China.

Of course, Moody’s experts expect that not everyone will lose out under Trump’s policies. Companies and corporations that could probably expect further tax relief under his presidency are likely to win. This should also more than compensate for the loss in sales due to weaker consumption. And all those who have stakes in those companies – their shareholders – are also likely to win. This may explain why many corporate bosses are now backing Trump as president.

The irony is that with the current economic policy course from the Biden presidency, the economic prospects for the entire country (and probably also for the global economy) would be better across the board, according to Moody’s. But for this course to still have a chance, the current president, despite all his merits, would have to very quickly abandon the idea of ​​a second term.

Source: Stern

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