“Economic Consequences of a Trump Presidency Redux”, Op-ed for CNN Business Arabic, 14 Jan 2025
The opinion piece is available in both English & Arabic.
The Arabic version titled “التداعيات الاقتصادية لعودة ترامب” was published in CNN Business Arabic on 14th January 2025 and can be accessed here & below.
The English version of the article:
Economic Consequences of a Trump Presidency Redux
The world is in a much different configuration compared to the previous Trump Presidency years, with multiple multi-year wars, growing trade and investment fragmentation [1], burgeoning global debt [2], an expanding BRICS+, an AI transformation unfolding , while 2024 is the first year above 1.5C of global warming [3]. Cold War II and a new world order are emerging.
Domestic policies to trigger inflation and lead to higher rates for longer. Trump second-term MAGAnomics- potentially a combination of tariffs, protectionism, tax cuts and a crackdown on immigration – with an already booming US economy, is inflationary in nature, leading to even higher US budget deficits [4] and debt [5]. A flareup in inflation would lead the US Fed to delay lowering interest rates and monetary easing, while other major central banks are easing rates (including the ECB and Bank of England). MAGAnomics policies would strengthen the dollar and increase US trade deficits. Higher-for-longer interest rates and a strong US dollar will negatively affect emerging markets and countries with high external debt-to-GDP, further exacerbating a growing global debt crisis and threatening socio-economic stability at a time when 48 developing countries spend more on interest payments than on either education or health [6].
Drill baby drill! The Trump administration would stimulate the fossil fuel industry, remove drilling restrictions from areas extending from Alaska to the Gulf and accelerate the building of oil and gas pipelines. The US is already a major oil and gas exporter (with Russia sanctioned and displaced from EU markets), maintaining its position as the top global exporter of LNG in 2024 [7]. Deregulation of US oil and gas would increase domestic production, lead to increased supplies and a downward impact on oil prices in addition to greater competition in export markets. This could adversely affect the GCC, with a consequent negative impact on their fiscal and current account balances.
Trade tariffs and protectionism. An intensification of US protectionist policies, justified on grounds of security or strategic interest, would exacerbate global trade tensions and lead to retaliatory actions. An increase in global trade and investment barriers would be anti-competitive, disrupt markets, and further distort global supply chains [8]. Higher and more encompassing tariffs on China, given ongoing tech wars and de-coupling measures, could slow growth, but China would likely counter with countervailing trade and investment measures, expanding markets in the global South, deepening BRICS+ economic integration. Strategically, US and EU decoupling from China can play in the GCC’s favour through bilateral trade diversion and investment and economic partnership [9] with China.
Pause button on climate commitments. Even as LA tries desperately to contain blazing fires, the current Trump/ Republican narrative is one of climate denial, making it more likely that the Trump administration will repeal many of the Biden-era policies, and reverse US international climate commitments. Recall that the US exited the Paris Climate Agreement under Trump. Reduced US spending on climate risk mitigation and adaptation, as well as delays in combatting GHG pollution raises global climate risks. Climate change does not recognise any borders!
The coming decade will be hotter if the underinvestment in combatting climate change is not reversed. This necessitates massive investment in clean and renewable energy and climate tech. The shift in climate related policies in the US offers an opportunity for the GCC. The GCC can build on their comparative advantage by increasing their clean energy investments, with an aim to export renewable energy as well as related climate technology (such as solar power, hydrogen, desalination, district cooling, desert agriculture).
No more wars? Statements about the “acquisition” of Greenland or Canada as the 51st US State notwithstanding, it is widely expected that Trump will not support ongoing wars. Whether Trump will be supportive of a deal to rebuild Gaza / Lebanon / Syria [10] or how he will deal with the Russia-Ukraine war will have a direct impact on the infrastructure industry, and oil and food markets. Of more far-reaching consequence would be if there are plans for more active use of the US military [11] – the anti-China and anti-Iran stance could lead to confrontation and increased sanctions; Cold War II would become warmer. If so, higher geopolitical risk would lead to increased defence spending, higher CDS rates, reduced capital inflows and FDI and a global recession.
The bottom line is that a second Trump term will be disruptive and turbulent. Uncertainty is the name of the game as the world waits to see what policies will be implemented once the President is inaugurated come Jan 20th. A global recession is a less likely scenario unless the beggar -thy-neighbour trade measures spread through the global economy, dragging everyone down.
التداعيات الاقتصادية لعودة ترامب
[1] Gopinath et al (2024) find significant declines in trade and FDI flows between countries in geopolitically distant blocs are 12% and 20% respectively lower relative to flows between countries in the same bloc since the onset of the war in Ukraine
[2] It is forecast to cross USD 100trn, with a USD 5trn increase since 2023.
[4] Trump’s 2017 Tax Cuts and Jobs Act’s reduction in corporate taxes was permanent, but much of the rest of the law, including cuts to personal income taxes, is set to expire at the end of 2025. If Trump extends these cuts for the next decade, a highly probable scenario, it could add approximately USD 4.6 trillion to the burgeoning national debt, according to a Congressional Budget Office report.
[5] Trump added USD 4.8 trillion in non-Covid debt, and Biden added another USD 2.2 trillion, according to the Committee for a Responsible Federal Budget.
[6] UNCTAD, June 2024.
[7] LNG exports hit 88.3 million metric tonnes (MT) in 2024, up from 84.5 MT in 2023, according to LSEG data.
[8] The Smoot-Hawley Tariff Act of 1930, which raised average tariffs on imports by around 20% and incited a tit-for-tat trade war, was devastatingly effective: global trade fell by two-thirds. Simon Evenett (2024) outlined various scenarios with retaliatory measures to US tariffs: in the case where the US imposes tariffs and countries retaliate against the US, the attractiveness of US as an export base declines; in a scenario where countries retaliate to US tariff hikes with tariffs on all its trading partners, there would be a tariff-drive contraction in global goods trade, eventually leading to a competitive devaluation spiral.
[9] https://nassersaidi.com/2024/12/11/uae-china-partnership-for-a-transforming-global-economic-geography-presentation-at-the-china-uae-investment-summit-abu-dhabi-finance-week-10-dec-2024/
[10] https://www.agbi.com/opinion/development/2024/11/trump-must-focus-on-rebuilding-a-war-torn-middle-east/
[11] The US already spends more on its military than the rest of the top 10 highest spending countries combined.