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One of the key economic factors contributing to the Democrats’ loss in the US elections was the significant rise in inflation, which was initially triggered by the COVID-19 pandemic and exacerbated by the Russia-Ukraine war. The role of inflation in electoral outcomes is not a new phenomenon; inflation has long influenced US presidential elections, often resulting in the ruling party’s defeat. Several US presidents in history have lost elections due to the economic impact of inflation.

The 1970s serve as a historical example of how inflation can shape electoral outcomes. The US economy during this period struggled with soaring inflation due to the oil embargo, which led to economic turmoil and the downfall of three Presidents: Richard Nixon, Gerald Ford, and Jimmy Carter. Nixon’s administration tried to address inflation with wage and price controls, but these measures were largely ineffective. Gerald Ford, who succeeded Nixon, also faced a struggling economy, despite his “WIN” (Whip Inflation Now) campaign aimed at reducing inflation. Similarly, Jimmy Carter’s efforts to curb inflation with monetary policies failed to prevent his defeat in the 1980 presidential election. Inflation played a significant role in shaping public sentiment and undermining the credibility of these presidents’ economic management.

In contrast, President Ronald Reagan’s policies in the 1980s were successful in curbing inflation, largely due to the efforts of US Federal Reserve Chairman Paul Volcker. Reagan’s ability to control inflation while stimulating economic growth helped him win a second term. His economic strategies, including tax cuts and deregulation, played a central role in his re-election and had a lasting impact on the US economy. Reagan’s presidency is often viewed as a model for effective economic management.

More recently, Donald Trump’s potential 2024 election win is seen as closely tied to similar economic promises aimed at stimulating growth and appealing to working-class voters. These promises include low taxes, increased tariffs, deregulation, a weak dollar, and stricter immigration policies. Trump’s focus on these issues seeks to revitalize the US economy, create jobs, and increase prosperity for American workers. However, his policies raise concerns, with potential far-reaching effects on the US economy and global markets. This study explores the likely impacts of Trump’s economic strategies for both the US and the world.

Economic Impact on the US

Increase in Tariffs: Trump and his advisers are committed to increasing tariffs on imports to protect US businesses, reduce the trade deficit, and stimulate job creation. Specifically, Trump has hinted at imposing a 50% to 60% flat tariff on Chinese imports and increasing the tariff on electric vehicles (EVs) from China to 200%, double the current rate under the Biden administration. Additionally, Trump has proposed levying a 10% to 20% tariff on all imports, along with a 500% tax on cars imported from Mexico. While tariffs are designed to protect domestic industries, they may have unintended negative consequences.

Tariffs increase the cost of production for businesses, and these costs are often passed on to consumers, resulting in higher prices for American households. Furthermore, retaliatory tariffs from other countries could hurt US exporters, potentially leading to job losses. For instance, the tariffs imposed on solar panels and washing machines in 2018 were intended to protect US industries but faced backlash from trading partners, demonstrating the risks of protectionist policies.

Dollar’s Dominance: Trump has also indicated his desire to weaken the US dollar to make American exports more competitive. A weaker dollar could make US goods cheaper for foreign buyers, increasing demand and sales. However, a weaker dollar may have unintended side effects. It could increase the cost of imports, fuel inflation, and complicate the Federal Reserve’s efforts to lower interest rates. Moreover, a weaker dollar could lead to capital outflows, forcing the Fed to raise interest rates to stem the outflow, ultimately reducing investment and undermining the policy’s objectives.

Trump may also pursue an agreement similar to the 1985 Plaza Accord, which aimed to depreciate the US dollar against the Japanese yen and German Deutsche mark. While the Plaza Accord succeeded in lowering US inflation, the current economic landscape differs significantly. The US economy today is more service-oriented, so the impact of a depreciating dollar on inflation may be more pronounced. Though the idea of a weak dollar may seem appealing for boosting exports, it’s important to consider the risks of higher import costs, inflation, and reduced investment.

Reduced Taxes: Trump’s tax policies were a significant part of his platform during his first term. The Tax Cuts and Jobs Act (TCJA) of 2017 introduced substantial tax cuts, which are set to expire in 2025. Trump has suggested extending these tax cuts and possibly reducing corporate taxes further to 15%. The TCJA reduced corporate taxes from 35% to 21%, and these proposed changes could further reduce federal revenue by an estimated $3 trillion from 2025 to 2034.

As of October 2024, the US national debt stood at approximately $35.95 trillion, with a GDP of $23.31 trillion, placing the debt-to-GDP ratio at a concerning 154%. Another round of tax cuts could worsen this fiscal imbalance, leading to higher deficits. With the government running large deficits, interest rates and bond yields are likely to rise, making borrowing more expensive for businesses and potentially slowing down investment and economic growth.

Deportation of Immigrants: Trump’s stance on immigration—specifically his vow to deport millions of undocumented workers—has sparked controversy. Estimates suggest that there are around 8.3 million undocumented workers in the US. The deportation of such a large number of workers could lead to significant labor shortages, particularly in industries like agriculture, construction, and hospitality, which rely heavily on immigrant labor. This could result in decreased productivity, higher costs for businesses, and price increases for consumers. Furthermore, the deportation could disrupt families, leading to significant social and emotional consequences.

Deregulation: Trump’s deregulatory stance aims to reduce government intervention in key sectors such as cryptocurrency, petroleum, banking, renewable energy, and healthcare. In particular, Trump may seek to ease regulations in the crypto industry, making the US a hub for cryptocurrency. Deregulation in the oil sector could lead to increased production and profi-tability, while the relaxation of banking regulations may reduce operational constraints. However, the environmental and public health consequences of deregulation in sectors like renewable energy and healthcare could be detrimental in the long run.

Economic Impact on the World

The potential return of Donald Trump to the US presidency is likely to have significant implications for the global economy. One major concern is the potential for trade wars and protectionism. Trump’s plans to increase tariffs could negatively impact global trade, particularly industries that rely on international supply chains. This could trigger retaliatory measures from other countries, leading to a global trade war that stifles economic growth.

A stronger US dollar, driven by Trump’s policies, could lead to the depreciation of other currencies, making imports more expensive and contributing to global inflation. This could reduce demand for imports and hurt global trade and economic growth. Emerging markets with significant US dollar-denominated debt may struggle to service their debt, leading to economic instability. Countries in the Asia-Pacific region, such as China and Japan, may face pressure to adjust their currencies or implement policies to mitigate the impact of a strong US dollar.

Economic Impact on India

In India, Trump’s protectionist policies could lead to increased tariffs on Indian exports, affecting sectors like IT and pharmaceuticals. This may result in reduced profitability and potential declines in exports. However, the shifting trade and investment landscape could provide opportunities for India as the world seeks alternatives to China.

India could benefit from the “China+1” strategy, where businesses diversify manufacturing operations away from China to other countries in Southeast Asia, including India. This trend could be a boost for India’s manufacturing sector, provided the country implements the right policies to attract investment. However, India may also face challenges due to a strengthening US dollar, which could put pressure on the Indian rupee and increase inflation, raising costs for consumers and businesses.

Conclusion

Trump’s economic policies are expected to have wide-ranging effects, both within the US and globally. Protectionism, a stronger dollar, and reduced demand for imports could lead to a potential global trade war. While India may benefit from the “China+1” strategy, it must carefully navigate the challenges posed by a strengthening dollar and inflationary pressures. By implementing the right policies, India can capitalize on these changes and potentially emerge stronger in the evolving global economic landscape.