As the US election approaches, leaders of the world economy worry about a Trump comeback

At the International Monetary Fund (IMF) and World Bank annual meetings, low economic growth, rising global debt, and ongoing conflicts officially dominated the agenda. However, finance leaders spent considerable time deliberating on the potential impacts of a Donald Trump presidency, should he win the 2024 U.S. presidential election.

Trump, the Republican candidate, has gained momentum in recent polls, erasing much of the early lead held by his Democratic rival, Vice President Kamala Harris. His resurgence was a recurring topic of conversation among finance ministers, central bankers, and civil society groups gathered in Washington last week.

Key concerns include Trump’s potential to disrupt global financial stability with extensive tariffs, increased U.S. debt issuance, and a shift from climate action to a focus on fossil fuel energy. Bank of Japan Governor Kazuo Ueda remarked, "There is high uncertainty about who will be the next president and the potential policy directions under new leadership."

Another central bank official, speaking anonymously, described the situation more bluntly: “It’s starting to look like Trump could win.” Trump has proposed imposing a 10% tariff on all imports, with a 60% duty on goods from China—a move that could severely impact global supply chains, likely inciting retaliatory tariffs and raising prices.

German Finance Minister Christian Lindner stated in an interview with Reuters that a U.S.-EU trade conflict would ultimately have no winners. Additionally, Trump has promised U.S. voters numerous tax breaks, including extending the 2017 tax cuts and exempting specific income types from taxes. Budget analysts estimate that his plans could add another $7.5 trillion in U.S. debt over a decade, on top of the Congressional Budget Office’s current projection of $22 trillion through 2034.

Conversely, a Harris victory is seen as a continuation of President Biden’s multilateral approach on climate, corporate taxation, debt relief, and development reform. While her policies are also expected to increase debt, they would likely do so to a lesser extent than Trump’s plans.

Although Biden upheld Trump-era tariffs on steel, aluminum, and Chinese imports, he targeted additional Chinese sectors, including electric vehicles and solar products. Harris has supported this selective approach, criticizing Trump’s proposed tariffs as an added $4,000 burden on American households.

TRUMP-RELATED MARKET MOVEMENTS

Financial markets are already seeing “Trump trades” in assets such as stocks, bitcoin, and the Mexican peso, which indicate growing expectations of a Trump victory. The dollar index has surged 3.6% in October, its largest monthly increase in over two years, with Standard Chartered analyst Steve Englander attributing 60% of the move to Trump’s gains in betting markets.

Brazil’s central bank head Roberto Campos Neto noted that these pro-Trump market bets are already affecting inflationary pressures on long-term U.S. interest rate futures, adding that both Trump and Harris have inflationary elements in their fiscal policies.

Concerns over Trump’s potential reversal on trade and spending emerged as the IMF announced that the global fight against inflation had seen positive progress without significant job losses. Kristalina Georgieva, Managing Director of the IMF, urged policymakers to begin reducing COVID-19-era debt levels to avoid a future of low growth and rising dissatisfaction.

Asked about Trump’s possible impact on IMF policy discussions, Georgieva emphasized that the focus remained on solving current economic challenges, leaving the U.S. election to American voters. “The sentiment is that elections are for the American people,” Georgieva said. “Our job is to address the challenges and how the IMF can help.”

EMERGING MARKET PRESSURES

The U.S. Federal Reserve’s recent rate cut might typically signal a positive period for emerging markets as financing conditions and inflationary currency pressures ease. However, concerns linger that larger U.S. deficits under a Trump administration could quickly disrupt this optimism.

“A larger deficit implies growing debt, which leads to higher long-term rates and likely a stronger U.S. dollar,” Turkish Finance Minister Mehmet Simsek said during a separate event. “These are unfavorable conditions for emerging markets.”

Participants at the meetings were also concerned that a global trade war could stall inflation-reduction efforts. “If one country imposes tariffs, it’s assuming others won’t retaliate,” explained South African Reserve Bank Governor Lesetja Kganyago. “But if others respond with similar tariffs, inflationary pressures could complicate matters for central banks worldwide.”

Mohammed Al-Jadaan, the Saudi Arabian Finance Minister and chair of the IMF’s steering committee, underscored past bipartisan cooperation between U.S. administrations and the IMF, emphasizing the importance of continued dialogue.

“Together, we’ve addressed numerous challenges like COVID and geopolitical tensions,” said Angolan Finance Minister Vera Daves de Sousa. “Every challenge offers an opportunity to adapt, learn, and improve our response.”

 

 

 

 

 

 

 

 

 

 

Paraphrasing text from "Reuters" all rights reserved by the original author.