Only a miracle could reverse the Democratic debacle in the upcoming presidential elections, in which not only the power of the White House is at stake, but more fundamentally the legislative arm formed by the House of Representatives (which is renewed every two years) and the Senate with its thirty-three seats.
The image of a physically and mentally depleted president has been consummated and contrasts with that of an energetic Trump: the photograph of him, with his face stained with blood, lifted up by secret service bodyguards while he shouts ‘fight!’ to the public and holds his fist up is the most reproduced in recent days and is considered iconic among Republican voters because it shows that their future president is a tough man who has plenty of grit and courage to spare. In the face of this, Biden just looks like a sweet grandpa.
Here in Europe, they expect Biden to drop out of the race and give way to either Vice President Kamala Harris or Michelle Obama, a former first lady and an activist who is popular and well-liked among Europeans. They cling to this miracle as if it were a nail in the coffin.
Although even NATO and the European Union (EU) itself are already anticipating the geopolitical and geo-economic scenario that will open up once Trump returns to the White House in January 2025.
Markets are beginning to adjust to this, says Mariano Sardans, president of wealth manager FDI, based in its Miami office.
‘The 30-year treasury bond rate has been increasing compared to the two-year treasury bond rate; what they see in Trump or are trying to see is that they are extrapolating what he did in his first term and expecting higher tariff barriers primarily against China and those barriers in the form of tariffs will obviously end up in consumer prices in the US,’ says Sardans.
If Donald Trump is re-elected president in November, Americans can expect higher inflation, slower economic growth and a larger national debt.
Trump’s economic agenda for a second term includes raising tariffs on imports, cutting taxes and deporting millions of undocumented migrants.
‘Inflation will be the main impact, at least that is what is anticipated during a second Trump presidency; ultimately, it is the biggest risk. If Trump is president, tariffs will surely go up. The question is how high they will go and how widespread they will be,’ Bernard Yaros of Oxford Economics told Al Jazeera.
Trump has proposed imposing a 10% across-the-board tariff on all imported goods and levies of 60% or more on Chinese imports. This will have a strong impact on several US value chains.
During Trump’s first term, from 2017 to 2021, his administration introduced tariff increases that at their peak hit around 10% of imports, mainly goods from China.
A recent Moody’s Analytics report on tariff policy under Trump indicates that the levies against Chinese goods inflicted economic damage on the US agriculture, manufacturing and transportation sectors. It is now feared that another round of tariffs against China may even be accompanied by tariff restrictions against products from the rest of the world.
‘A tariff increase covering nearly all imports of goods, as recently proposed by Trump, goes far beyond any previous action,’ Moody’s Analytics said in its report.
Companies often pass on higher tariffs to their customers, which raises prices for consumers. They could also affect companies’ decisions on how and where to invest.
In fact, last June, a group of Nobel Prize winners in economics issued a letter warning that a second Trump term based on a much tougher tariff policy and increased protectionism will only reignite inflation and make it harder for businesses to generate wealth. Last year, inflation in the US closed at 3.4 per cent and GDP grew by 2.5 per cent.
‘We believe that a second Trump term would have a negative impact on America’s economic standing in the world and a destabilising effect on the US domestic economy,’ according to the letter signed by economists such as Joseph Stiglitz and Angus Deaton.
While overall inflation has slowed over the past two years, many US consumers are still unhappy with the higher prices they have to pay for food, gasoline and other goods, according to public opinion polls.
The new foreign policy
In turn, Gram Slattery of Thompson Reuters ventures that Trump wants to alter the EU’s relationship with NATO; but he also plans to send armed forces to Mexico to fight drug cartels.
Foreign policy is the most controversial point of everything Trump has already announced he will do, and it is not only his bad relationship with China but also Ukraine, NATO and European allies that are on the list.
‘Trump has said that under his presidency, the United States will fundamentally rethink the purpose of NATO and its mission. And he will also ask Europe to reimburse the US for nearly $200 billion in munitions sent to Ukraine,’ according to Slattery.
On Ukraine, no change in Trump’s stance is in sight. In fact, the choice of Ohio Senator J.D. Vance as his vice-presidential running mate only reinforces the anti-Ukrainian discourse and aligns with the same thinking that blames NATO for ‘annoying’ Russia, which consequently decided to invade Ukraine.
A few months ago, an opinion column written by Vance for The New York Times generated quite a bit of controversy, in which he pointed out that it was only a matter of mathematics to realise that Ukraine would end up under Russian rule. And, he agrees with Trump that the only possible peace plan for Ukraine is for the Kiev government to cede the territory invaded by the Russians and sign a peace plan in which it guarantees its neutrality and that it will never join NATO.
Trump has been reiterating that the situation in Ukraine will be resolved with him after the elections and before he takes office in January 2025.
A peace plan is already on the table that will force Kiev to meet with the invaders and accept their conditions.
The other wars that are already on the horizon
Thompson Reuters analyst Slattery also notes that the geo-economy will be marked by Trump’s return to power with new tariffs or trade restrictions against China and some European allies.
One rather striking proposal is that Trump has called for an end to China’s most-favoured-nation status by enacting a series of restrictions on Chinese property to prevent their investments from being able to participate in any vital and critical infrastructure in the US.
On trade, Mexico has already displaced China as the US’s main trading partner and if, as anticipated, Washington’s tariff war against Beijing intensifies, this could continue to benefit the Aztec country unless Trump’s protectionist policy also jeopardises free trade with Mexico. He has not said so yet.
In the case of Mexico, his main concern has to do with the power of the drug cartels and the issue of the border, which for him continues to be a sieve for illegal immigrants.
‘Trump has in mind designating the drug cartels operating in Mexico as foreign terrorist organisations and intends to order the Pentagon to use its special forces to attack the cartels‘ leadership and infrastructure,’ Slattery wrote.
There is not yet a fully structured plan, but Trump has stated at several of his rallies that he would deploy the US Navy to block the passage of drugs and through the Alien Enemies Act would deport drug traffickers and gang members in the heat of the moment.
The hardline wing of the Republican Party, fully aligned with Trumpist positions, is calling for the transfer of thousands of troops from bases in Europe to the US-Mexico border to fight illegal immigration and attack drug cartels.
A troubled economy
Will there be a super dollar with Trump? Mariano Sardans, CEO of wealth management firm FDI, pointed out that the economic conditions in Trump’s first term are not the same as they are today.
‘The Trump administration will be very much shaped by his international policy. His victory seems inevitable… the Biden administration has no ability to change this. Both Democrats and Republicans will have to rein in spending and will have to balance revenues with expenditures so that the size of the debt does not continue to increase or at least stops in terms of debt to GDP,’ said Sardans.
Will there be a return of the super dollar with Trump?
The super dollar is more related to the issue of non-inflation than to the measures that Trump will implement and it is true that the United States needs a strong dollar as part of its success as a world power, not only military and technological… a strong currency is vital for the United States to remain a world power; and, for that to happen, inflation has to ease and must be brought back to the 2 per cent target.
Sardans believes that the first objective should be to keep inflation down: ‘If there is inflation, investors flee from countries that have inflation. Interest rates in the United States are very high, I would say that in his second presidency we will see a cabinet of liberal officials, and that means lowering taxes and seeking a small and efficient state.
How has Wall Street digested the attack on Trump?
-The markets have remained the same, value and traditional companies continue to rise, and the technology segment, which had been flat, has risen, but companies had been lagging because the Fed says inflation is being controlled.
Is a tightening of trade policy expected to affect Mexico?
-With Mexico there is a different trade situation than with China. Mexico, thanks to the barriers with China that are geopolitically motivated, has benefited in some way; don’t forget that anything that impedes free trade means more consumer spending and that means more inflation.
It is already undeniable that Europe and the markets are anticipating that Trump’s return to the White House will bring more tariffs, more protectionism, more protectionism, more iron fist against immigration; more persecution, more threats, more speeches exalting America first and less in favour of joining alliances with other countries and defending multilateralism in the face of threats from autocracies and other governments. His return to power seems inevitable.
