Good morning from New Economy Brief.
Last month, Donald Trump pulled off a major political comeback to be elected President of the United States for the second time. Because there is so much to cover, we’ve split our Trump election analysis into two parts. In part one, we examined the economic drivers behind his victory.
Now, we’ll look at what Trump’s return to power means for the global economy. In particular, we’ll look at the impact of tariffs and protectionist policies, the likely effects of Trump’s climate denialism, and the lessons that progressives can learn from his success.
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Tariffs and trade.
The promise of high import tariffs was a huge part of Trump’s campaign. Proposals include a blanket tariff of 10% on all foreign-made goods and a 60% tariff on Chinese goods. But as Bloomberg has outlined, it’s difficult at this stage to separate “protectionist campaign rhetoric” from actual policy. We’ll only know the shape and scale of Trump’s tariffs once he takes office in the new year. Trump’s tariff obsession certainly hasn’t died down post-victory. Just days ago, he took to Truth Social – the social media platform he owns – and threatened 100% tariffs on imports from the BRICS if they follow through on the idea of creating a rival currency to the US dollar. With the caveat of Trump’s unpredictability, Bloomberg’s best guess is that there will be three waves of tariff hikes, starting in summer 2025. It predicts that tariffs on Chinese imports will triple by 2026 with smaller increases for other countries. Overall, this would triple average US tariffs to almost 8% by the end of 2026. So what does that mean for the rest of the world and the UK?
GDP. According to the LSE’s Grantham Institute, China would sustain the largest GDP drop as a result of Trump’s tariffs, at ‑0.68%, while the EU would see a -0.11% reduction in GDP. However, while the overall EU impact is relatively low, it is estimated that impacts on individual countries would vary significantly. Germany, according to the Grantham Institute, would see its GDP fall by more than twice the EU average (-0.23%), as the US is the top destination for its exports. Meanwhile France and Italy would both sustain very minor impacts (-0.15% and 0.01% respectively), with the UK closer to the European average, at ‑0.14% of GDP.
The UK’s vulnerable position. Modelling by the National Institute of Economic and Social Research (NIESR) suggests that as a small, open country, the UK would be even more vulnerable to Trump’s tariffs. Ahmet Kaya, a NIESR economist, said that were Trump to go ahead with the main tariffs outlined above, the resulting trade war would lower UK growth by between 0.7 and 0.5 percentage points in the first two years.
EU relations. Governments now have a choice: they can either play along with Trump’s strategy or call his bluff and threaten retaliatory tariff increases. Keir Starmer, too, is under pressure to "pick a side". As Simon Wren-Lewis points out, those on the right of British politics will argue that they are much better placed than Labour to work with Trump, leaving Starmer’s government politically vulnerable.
Instead of playing along with Trump, Wren-Lewis suggests that Labour could use Trump’s tariffs to argue that closer trading links with the EU are essential to protect free trade and boost growth. Starmer has committed to a ‘reset’ of relations with Europe, but how far this will go remains to be seen.
Impacts on the Global South. As with all things Trump, it is difficult to predict what the impact of his new administration will be on Global South countries. Concerns have already been raised about his approach to trade with African nations. Since 2000 the African Growth and Opportunity Act (AGOA) has allowed some African countries to export to the US without paying taxes. However, AGOA is up for renewal in 2025, and the previous Trump administration signalled that it would not extend the agreement. Now Trump has been re-elected there are worries he will stick to this decision, with potentially significant impacts for African exporters.
There are also suggestions that Trump’s isolationism will accelerate the end of the unipolar order and could further motivate Global South countries to re-orientate themselves away from the dollar and from reliance on raw material exports to richer, industrialised nations. This would align with growing civil society calls in the Global South to reduce economic dependency on exports to industrialised countries such as the US, and to to boost homegrown industrial capacity and regional and South-South trade. Macrodose has more on the trend towards a ‘multipolar’ world.
And then there’s inflation… Economists have warned that Trump’s tariffs will increase prices for US consumers, with some estimating that they could cost middle-income American families $2,500 to $3,900 per year. But what about the global economy? Clearly, any supply chain disruption – let alone a full-blown trade war – will cause price volatility across the globe. NIESR estimates that tariffs would push up the price of UK imports, reducing the spending power of households and businesses. It calculates that UK inflation could climb 3.4 percentage points as a result. While this could imply even higher inflation in other countries, Trump tariffs on China could actually lower inflation, according to the economist Swati Dhingra, one of the external members of the Bank of England's Monetary Policy Committees
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Climate
Donald Trump is one of the world’s most vocal and most influential climate sceptics, so his re-election has sparked deep concern among climate experts worldwide. During the election campaign, he promised to “drill, baby, drill”, vowing to replace renewable energy efforts with more oil and gas production. Consequently, researchers predict that his election could lead to an additional 4 billion tonnes of carbon dioxide equivalent emissions from the US by 2030, compared to Joe Biden’s plans. And as we discussed last week, the expectation that Trump will pull the US out of the Paris Agreement overshadowed COP29.
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The legacy of Bidenomics
Trump’s victory has been viewed not only as a vindication of his political and economic strategy but also as a repudiation of his predecessor's approach. This means some will see the economic policy of Joe Biden – ‘Bidenomics’ – as a political failure. This matters because through measures such as the Inflation Reduction Act and the CHIPS Act, Bidenomics has in many ways become a blueprint for progressive, climate-focused industrial strategy and a new way to do economics. As Adam Tooze argues, “Bidenism wanted to respond to America’s many crises not with orthodoxy but by making a historically significant break”. For progressive governments that also want to break from an economic consensus that has failed to deliver inclusive growth and a just transition to net zero, that presents a political challenge.
Lessons for progressives. As we explored in part one of this focus, Trump won in large part because while Bidenomics delivered economic growth, many Americans did not feel the benefits. Biden’s government did provide trillions of dollars of short-term help to families during the cost-of-living crisis in the form of the CARES (Coronavirus Aid, Relief and Economic Security) Act of March 2020. Yet despite the scale of this support, it still wasn’t enough to properly plug the gaps in a broken social security system or to bring lasting stability to households’ finances.
This was where the Inflation Reduction Act was supposed to come in. Through government investment and large-scale infrastructure projects, it was meant to create green jobs, cut families' bills and redistribute wealth via corporate taxes. But this didn’t happen quickly enough for ordinary Americans to feel the positive impact. So what does that mean for other governments promising long-term economic recovery? What does it mean for the likes of Keir Starmer’s government, which is promising a ‘decade of renewal’? Ten years is a long time to wait and see if the government will improve your lot, and Trump's victory shows that voters only have so much patience.
This could be one reason why Starmer is unveiling a new Plan for Change in a speech this Thursday. The Prime Minister will outline how his government plans to “deliver real, tangible improvement to the lives of working people across the country in this Parliament”. With voters desperate for higher living standards and better public services, the Prime Minister will now be very aware of the consequences of failing to deliver the improvements his government is promising.
Reshoring energy jobs through a jobs bonus. Uplift and Transition Economics have proposed putting more conditions on government subsidies to help create good green energy jobs and grow domestic supply chains. Their new report explains how a ‘Jobs Bonus’ could create 10,000 permanent direct renewable energy jobs and up to 13,300 indirect jobs in areas that are experiencing decline. It also looks at how to support current oil and gas workers into these good new jobs.
Green interest rates to reduce electricity costs. The New Economics Foundation (NEF) has proposed the Bank of England could introduce a ‘green interest rate’ (lower than its main Bank rate) to encourage investment in clean energy projects – something it argues would boost renewables and reduce electricity costs by more than £1.9 billion a year by 2030. Similar schemes have been introduced in countries including Japan, China, and Hungary.
England’s integrated national transport strategy. A new Institute for Public Policy Research (IPPR) blog sets out seven tests to judge if the UK government’s first integrated national transport strategy for England “seizes the opportunity to create a fairer, greener and healthier transport system.”
Democratising food and farming. Abundance has published a report proposing that England’s council-owned farms could transform Britain’s food system, moving it “away from ecologically destructive ‘conventional farming’ methods and towards socially and ecologically regenerative food systems rooted in the principles of food sovereignty”. The report argues that councils can use public-common partnerships (PCPs) to deepen community democratic control of farming, improve biodiversity, and provide employment and training opportunities.
Tackling the housing crisis. Common Wealth’s Chris Hayes argues that “reliance on speculative private developers and market coordination” won’t solve the housing crisis. He proposes a strengthened role for the public sector in acquiring and building more public housing, alongside tighter regulation of ownership and lending.
Democratising Big Tech? A policy paper from the UCL Institute for Innovation and Public Purpose (IIPP) explains how to ‘reclaim digital sovereignty’. The paper’s authors, including economists Cecilia Reikap, Cédric Durand and writer and podcaster Paris Marx, propose a variety of solutions to reduce the power of Big Tech companies.
