60 seconds on Trump's potential economic impact
In this video, Keith Wade discusses some of the potential economic implications of Donald Trump's presidential election victory.
Unstructured Learning Time
Now that Donald Trump has been elected we need to think about how it will affect the US and world economy.
He has some strong policies on trade, fiscal policy and migration.
On the trade side there is a concern that he will want to put tariffs on the likes of China and Mexico, and he has talked about tearing up the North Atlantic Free Trade Agreement (NAFTA). This would slow down global trade growth and by putting tariffs on goods it would likely push up US inflation, and it could lead to a retaliation from other countries who might in turn put tariffs on US goods. This is what we call a trade war and would not be good for global growth.
However, fiscal stimulus from Trump could offset this. We could see some extra spending and he has talked about huge tax cuts. I don’t think he will get all that through Congress but we will see some of that.
He is now also talking about rebuilding the US and we could see some infrastructure spending. Before the election he talked also about some big cuts in expenditure so it is difficult to work out where that will go, but I think there will be some fiscal stimulus coming through.
Then on migration – he is going to cut migration, he’s going to be increasing deportations. That would actually result in probably higher wage growth, which is something he wants to achieve but again that could be inflationary because the US is at the end of its economic cycle and unemployment is already quite low. When you start cutting the labour force in this environment you probably get more inflation.