Republican presidential candidate and former U.S. President Donald Trump talks to reporters at the International Brotherhood of Teamsters headquarters on January 31, 2024 in Washington, DC. (Photo by Chip Somodevilla/Getty Images)
“God help us.”
This was the closing sentiment of a recent statement by former White House chief of staff John Kelly about his ex boss, Donald Trump.
Last week, Trump, perhaps America’s most divisive president, clinched the New Hampshire Republican primary, putting him in poll position to become the party’s nominee to contest Joe Biden in the upcoming United States elections.
In light of his first go, the prospect of a second Trump presidency is probably enough to send shivers down spines. And though its true effect remains to be seen, there seems good reason to be braced for impact — especially considering the already fractured state of the global economy.
Trading places
Trump made his mark on global commerce when he embarked on a trade war with China a year into his first term as president, raising tariffs on imports from the world’s second-largest economic power.
By late 2019, the US had imposed tariffs on roughly $350 billion of Chinese imports. China had retaliated on $100 billion of US exports. Trade between the two heavyweights collapsed in the immediate aftermath and has remained well-below the pre-conflict trend.
In 2022, one study quantifying the trade war’s economic impact described it as “the most important trade policy shift in recent decades”, signalling its anti-globalisation effect.
While Biden has made overtures of mending economic ties between the two superpowers, the incumbent has pressed on with the trade war — even choosing to escalate tensions, endeavouring to clamp down on China’s technological development through export and investment bans.
In the run-up to this year’s elections, both Biden and Trump have maintained tough positions on China — each of them putting American industry ahead of strengthening free trade. That said, another Trump presidency could see a ramping up of the economic nationalism he seems to have inspired.
Describing Trump-era trade policies, independent economist Eckart Naumann says the 45th US president was driven by a broad sense of “quid pro quo” and what his administration viewed as being fair to the US.
“In practice, this often played out as a misguided perception that trade imbalances are inherently unfair and that only the net exporter benefits, or benefits much more, and unfairly so,” Naumann adds.
“It plays to a political audience. Where the US was a net importer, no matter the characteristics of such bilateral trade, it was perceived as something that needed to be rectified.”
Breaking ties
For this very reason, Trump often played the antagonist when it came to trade agreements.
Shortly after his inauguration, Trump withdrew the US from the Trans-Pacific Partnership — which, prior to this decision, was set to become the world’s largest free trade deal. He also eventually renegotiated the North American Free Trade Agreement, ultimately replacing it with the US-Mexico-Canada Agreement.
Going into this year’s elections, Trump has already made clear his intention to double down on his so-called America First trade agenda, proposing a new 10% tariff on all goods imported into the US.
Last year the Republican hopeful also stated that, if elected, he would work with congress to pass legislation which would effectively punish any country imposing tariffs on American-made goods that are higher than those imposed by the US.
If Trump ends up winning the elections, his presidency will come as world trade growth looks to remain well below the historical average.
Earlier this week, the International Monetary Fund (IMF) flagged in its World Economic Outlook update that rising trade distortions and geoeconomic fragmentation are expected to continue to weigh on trade and thus the global economy — which will also see tepid growth.
The IMF cited Global Trade Alert data showing that countries imposed about 3 200 new restrictions on trade in 2022 and about 3 000 in 2023, up from about 1 100 in 2019.
In 2018, renowned American economist Joseph Stiglitz wrote about the long-term effects of Trump’s economic policies — suggesting that these could last even if his successor reaffirmed America’s commitments to the rules-based international trade system.
“For three quarters of a century, the US tried to convince others that borders did not matter, or should not matter, at least as far as the movement of goods and services was concerned,” Stiglitz wrote.
“Trump has shown otherwise; and America’s trading partners will know that it could once again elect a protectionist and someone who does not believe in international institutions. Global businesses will know that there is risk in creating global supply chains on the presumption that borders do not matter.”
During the recent back and forth over the African Growth and Opportunity Act (Agoa), some expressed concern that a Trump presidency could imperil US-Africa trade ties. But Naumann suggests this is unlikely given that the legislation’s renewal is the prerogative of US congress.
“Presidents don’t conclude trade agreements, but they generally set a broad trade policy agenda and the influence and impact of a president can obviously not be overlooked,” he says.
While Trump probably isn’t Agoa’s biggest fan, owing to its non-reciprocal nature and the trade deficit it brings with it, Sub-Saharan Africa’s trade with America accounts for less than 1% of US imports, Naumannn notes.
The US also cannot afford to lose the political soft power that comes with Agoa, according to Naumann. However, there is a chance a Trump administration will put more scrutiny on the eligibility of individual countries — and the US may not wish to extract greater advantage from Agoa beneficiaries.
“Things will become more transactional and there will be less emphasis on the bigger picture, or a long term vision, unlike the current administration which quite clearly articulates the importance of Africa to America’s own prosperity going forward,” Naumann adds.
“There’ll likely be less long-term and bigger-picture policy towards Africa and more cherry-picking of specific countries that hold direct trade or investment advantage to the US.
A new world order
While trade volatility — and its effect on financial markets — has the potential to hurt everyone, economist Michael Power suggests whatever pain Trump inflicts could be felt most acutely by the West.
The prospect of another Trump presidency has clearly stirred serious misgivings among Western powers. His possible return ended up being a major topic of discussion at the World Economic Forum meetings in Davos in January.
“The question for me is, will he end up upsetting the West more than he upsets the rest? And that is a question that for us in South Africa would be more important,” says Power, who previously worked as Ninety One’s global strategist for the better part of two decades.
“My feeling is that the world order as we know it is already crumbling, but with Trump there it would probably end up crumbling even faster.”
As the IMF’s warning on trade growth suggests, geoeconomic fragmentation has become a bigger risk to the global economy in recent years. The international finance institution has said on several occasions that countries should endeavour to limit geoeconomic fragmentation by removing trade barriers and restoring trust in rules-based multilateralism.
A Trump presidency threatens to do the exact opposite.
Early on in his term, Trump announced that the US would withdraw from the Paris Agreement, saying that the international climate treaty placed an unfair economic burden on American workers, businesses and taxpayers. Later in his presidency — when the world was in the throes of the Covid-19 pandemic — Trump moved to withdraw from the World Health Organization. Biden reversed these decisions.
“The US itself is already divided. The question is what Trump would then do for US relations with the rest of the world and its allies. Would it start to get very heavy-handed towards China? These are things people are asking. And I think they are right to be asking that,” Power said.
“I think it is particularly worrying for the West. But I don’t think us in the rest should necessarily take comfort in that.”