lDonald Trump’s first term began chaotically. The second will charge forward. During the campaign, the Republican proclaimed what he was going to do and repeated it after the elections, at the same time that he announced a series of appointments consistent with the ambition of a transformative presidency. Neither China nor Europe will be able to argue that they were not warned.
At the macroeconomic level, the roadmap is clear: perpetuation of the tax cuts decided during the first term, mass expulsion of illegal immigrants and increase in customs tariffs, up to a punitive level (60%) for Chinese products and up to a 10% for 20% on imports from other countries. As economist Olivier Blanchard has shown, these three measures will combine to produce a major inflationary shock, forcing the Federal Reserve to raise interest rates. The expansionary effect of tax cuts will be attenuated, the deficit in public accounts, already higher than that of France, will increase even more and the dollar will appreciate.
The question is whether Trump will put pressure on the US central bank to discourage it from raising rates too sharply. If it does, the currency’s credibility will be severely affected, in the United States and, no doubt, beyond. In any case, one thing is clear: revenue from customs duties will not be enough to cover the additional deficit induced by the perpetuation of tax cuts. US public debt risks becoming unsustainable, which in the long or short term would call into question the fundamental role of the dollar.
Privileges and duties
In the short term, the effects of this policy in Europe will be uncertain: customs tariffs will penalize European exports, but the appreciation of the dollar will have the opposite effect. Trump, however, will undoubtedly not limit himself to applying a uniform increase in customs duties: he could differentiate them according to products and thus penalize surplus countries like Germany, or even, in the transactional logic with which he is familiar, exchange lower tariffs for a commitment to buy American weapons, or maintain a security guarantee for European purchases of American gas. European unity will be tested.
In the long term, there is little doubt about the harmful effects of a protectionist policy. A recent evaluation by the Center for Prospective Studies and International Information shows that, in a scenario that combines the maintenance of free trade between the United States, Canada and Mexico, an increase in customs tariffs of 60 points for imports from China, and of 10 points for the In the rest of the world, the Chinese economy would suffer greatly from the disengagement from the United States, while the impacts in Europe would remain limited. The big winner would ultimately be Mexico.
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