Potential policy changes under a renewed Trump presidency could have far-reaching effects on the US and global economies. Proposed tax cuts may deliver short-term boosts to investment and income in the US but risk creating medium- and long-term challenges. Immigration and trade policy shifts are likely to drive higher inflationary pressures domestically and globally, while increased tariffs could disrupt global trade and accelerate efforts by companies to de-risk supply chains.
Tax cuts create short-term wins, but can become a headwind
One of Trump’s main proposed policies is to extend the Tax Cuts and Jobs Act in combination with reduced corporate taxes, tax exemptions and deregulations. This could have some positive impacts on the US economy in the near term, by helping to boost sentiment and encouraging companies to invest and consumers to spend, particularly amid declining interest rates. Higher-income households are likely to benefit more from lower taxes as they enjoy a larger increase in after-tax income compared to other households.
In the medium and long term, however, lower tax revenue could affect government finance in the US.
In 2024, the fiscal deficit in the US is expected to stay at 6.9% of total GDP, while the debt-to-GDP ratio would reach 121%, remaining higher than pre-pandemic levels
Source: Euromonitor International
Rising deficit and debt levels could push borrowing costs up for the US economy in the long term, hindering the country’s growth prospects.
Meanwhile, the positive effects of tax cuts on investment and consumer spending could be offset by the negative impacts of supply-side constraints resulting from Trump’s other policies, namely increased tariffs and immigration controls. In Euromonitor International’s Q4 2024 baseline forecasts, the US economy is expected to grow by 1.9% in 2025, down from 2.6% in 2024.
Higher tariffs raise the risk of trade tensions, accelerating supply chain de-risking
As part of his “America First” agenda, President-elect Trump has pledged to impose 60% tariffs on all goods coming from China and 10-20% tariffs on goods imported from all other countries. If these tariff hikes materialise, they could trigger retaliation by other countries and lead to growing trade tensions, particularly between the US and China.
Rising geopolitical rivalries will threaten deeper fragmentation and lower growth for the global economy and undermine trade efficiency due to higher costs and constrained market access. Businesses will have to navigate a more complex trade landscape, while nearshoring and reshoring are expected to rise as companies are urged to reduce dependence and build resilience by diversifying their manufacturing bases and supply chains.
Emerging markets such as Mexico, India, Vietnam and other Southeast Asian economies may see higher trade and investment inflows under the new Trump presidency, as they are evolving to become alternative manufacturing hubs to China. This will create growth opportunities for businesses in those dynamic economies, as income and consumer spending can receive a boost from increased investment and economic expansion.
Inflationary pressures rise on higher trade, investment and wage costs
While Trump’s proposed tariffs can benefit some protected industries in the US, they will come at a cost for other industries and consumers. US consumers would face higher import prices and reduced choices in the near term. The US is one of the world’s largest importers of several goods including machinery, electrical, vehicles and pharmaceuticals. Before manufacturers and retailers can adapt to the new tariffs or find cheaper alternative supply sources, they would pass the immediate cost on, either partially or wholly, to the customers, pushing up consumer prices inflation.
Immigration is another supply-side constraint on the US economy which would impact prices. Reduced immigration would affect several key sectors such as construction, services and agriculture, driving up wages and inflation.
Foreign citizens make up 6.7% of the total US population in 2024, while foreign workers have been a key source of labour force growth in the country
Source: Euromonitor International
China likely to increase stimulus, while diversifying markets
China will face more economic headwinds next year if President-elect Trump delivers on his tariffs proposal. This will come at an unfavourable time when the Chinese economy is experiencing a slowdown amid a property sector downturn and weakening external demand. Nevertheless, the Chinese government is likely to respond with greater policy support to offset the external shock caused by higher tariffs, while boosting domestic demand.
While tariffs would hit China’s exports, Chinese exporters have diversified their markets and becoming less reliant on the US than in 2018 during Trump’s first presidency.
China has so far maintained its position as the world’s largest exporter, achieving a total exports value of USD3.4 trillion in 2023
Source: Euromonitor International
The share of China’s exports to the US out of total exports stood at 14.7% in the same year, down from 19.1% in 2018.
Amid growing uncertainty and risks, businesses should take a proactive approach to navigating potential disruptions while maintaining a focus on growth. Leveraging global production networks and reallocating trade and investment will remain key strategies for driving efficiency, ensuring supply chain resilience, and capitalising on opportunities in international markets.
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