Donald Trump is Elected as the 47th President of the USA

What a Trump Presidency Means for the US and Global Economy

08/November/2024

With Donald Trump re-elected as President, winning both the electoral college and the popular vote, there’s much speculation about how his economic policies could impact personal finances, inflation, and international trade. Trump’s agenda includes tax cuts, changes to student loan policies, and, notably, tariffs on imported goods. However, how sensible are these decisions from an economic perspective, and how can these be beneficial or limiting for you? In this weeks’ article, we will break down what his proposed plans could mean for the economy and why global audiences should pay attention.

Inflation: Will Prices Go Up or Down?

Trump has proposed raising tariffs on imports—extra taxes on goods from other countries. For instance, he’s suggested a 10%–20% tariff on all foreign products, with a steep 60% tariff on goods from China. While tariffs aim to protect U.S. businesses by making foreign goods more expensive (therefore encouraging Americans to buy locally), they often increase consumer prices. Companies that rely on imported materials or products might pass the added costs to customers, leading to price hikes on items like electronics, clothes, and cars.

What’s inflation?
Inflation happens when prices rise over time, making your money less valuable. Imagine a $10 item suddenly costing $12. Inflation means you’re able to buy less with the same amount of money, affecting everyday expenses like food, rent, and gas.

Potential Trade War: How the World Might Respond

“An eye for an eye makes the whole world blind” - A trade war occurs when one country responds to trade barriers with their own as retaliation, ultimately limiting global efficiency, since trade is mutually beneficial. One of Trump’s most significant trade policies involves using tariffs as a tool against major trade partners. A trade war may arise if nations like China and members of the EU respond in kind. Trump’s tariff threats have prompted the EU to consider its own retaliatory tariffs, as it did in 2018 when the U.S. imposed tariffs on steel and aluminum.

If this escalates, it could create higher prices globally, slow trade, and even damage the economies of major exporting nations like Germany, whose automotive industry heavily relies on U.S. exports. Economists estimate a potential trade war could cost the EU billions of dollars, with losses extending even further in China. Trade experts also worry this approach could weaken the World Trade Organization, destabilizing international trade rules that help protect smaller economies.

Taxes: What Could Change for U.S. Taxpayers?

Trump plans to extend tax cuts from his 2017 Tax Cuts and Jobs Act, which lowered tax rates for individuals and corporations. These cuts mean taxpayers could keep more of their income, but they also contribute to the national debt, which is the total amount of money the U.S. government owes. Trump also wants to lower the corporate tax rate by an additional 1% and eliminate taxes on tips, benefiting service workers like waitstaff. However, if tax revenue falls, it could lead to higher national debt, potentially impacting long-term economic stability.

Student Loans: Will Debt Relief Go Away?

Trump has voiced opposition to broad student loan forgiveness and has suggested removing programs like Public Service Loan Forgiveness (PSLF), which currently provides debt relief for people working in public service jobs. Without such programs, students may face longer loan terms and more financial pressure, making it harder to pay off educational debt.

The Big Picture: How Could These Policies Affect the Economy?

If Trump’s proposed policies are enacted, economists predict:

• Higher prices (inflation) from tariffs

• Rising national debt due to tax cuts

• Economic instability from potential trade disruptions and healthcare reforms

While these policies are focused on the U.S., their effects will likely ripple globally. Price changes, trade restrictions, and economic adjustments in a large economy like the United States influence markets, trade dynamics, and even exchange rates around the world, meaning that a threat to the value of the Euro currency that we use here in Austria may even arise.