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What happens in the world’s biggest economy affects our prosperity too



Many of them carry significant implications for the global economy. Large growth markets such as Mexico and India are going to the polls within the next month. June’s European elections will determine the composition of the EU parliament at a time when far-right parties are on the rise and the bloc is becoming ever more polarised over economic policy.

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However, it is hard to look beyond the US elections and their potential to shape not just the near-term economic outlook, but the global economy’s path for the next decade and beyond. Thus far, markets have remained remarkably calm despite a bitter contest likely this November. If Trump was to win, how might this impact the global economy?

First, Trump has promised to accelerate an “America First” policy agenda. He has proposed a 10% across-the-board tariff on all imports. He has talked too of even higher tariffs on imports from China and clamping down on the ability of China to export via third-party countries. All with the stated aim of protecting American jobs.

But history provides an important lesson. Trump’s plan is, in effect, a modern-day version of the infamous Smoot-Hawley Tariff Act. Introduced in 1930, it increased US tariffs by 20%. Also, with the aim of protecting American jobs. The policy backfired. At least 25 countries retaliated with their own tariffs. Inflation increased and trade plummeted. Smoot-Hawley is now widely regarded as not only a core reason for the Great Depression, but as one of the most catastrophic acts in US policy history.

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Second, while Trump has promised to rein in spending commitments, he has also committed to tax cuts. So, the US deficit, over 6% of GDP in 2023, isn’t guaranteed to be tackled any time soon. All of this – and the potential for tariffs to lead to a spike in inflation – will make US monetary policy more restrictive for longer.

Third, a Trump presidency is likely to see a rowing back on efforts to tackle climate change. Republicans have consistently called for the scrapping of the Biden administration’s Inflation Reduction Act with its support for clean energy projects, electric vehicles, and green infrastructure. There is speculation too that Trump would remove the US from the Paris climate agreement.

Just these three agendas alone carry significant implications for the global outlook and for the outlook here in the UK. Tariffs, for example, won’t just hamper global economic growth but will impact directly on key sectors in Scotland. Back in 2020, for example, the US’ 25% tariff on whisky contributed to a fall in US whisky exports of over 30%.

Higher US interest rates will ripple through to global interest rates, with knock-on effects for how quickly interest rates can fall in the UK. Rising prices and slow global growth will be a challenging backdrop for whoever enters Number 10. Finally, any scaling back on US climate change ambitions not only increases the risk of environmental catastrophe but will delay the rollout of new technologies, increase investment costs, and weaken global supply chains.

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Perhaps of most concern, and regardless of the outcome of this year’s election, it is increasingly evident that the US political system is becoming increasingly dysfunctional, with trust in institutions reaching historic lows. With the US holding a crucial global leadership position, how it conducts its economic policy – and the decisions it takes – carries huge influence.

This week at Glasgow University we’re hosting Daron Acemoglu from MIT as part of our Adam Smith Distinguished Lecture Series. He is the author of a book titled Why Nations Fail. In it, he sets out how effective institutions and good governance can help explain why some countries have become more economically prosperous than others. We might be soon testing that hypothesis with the world’s largest economy later this year, although unfortunately the outcomes will matter for our prosperity too.

Graeme Roy is professor of economics at the University of Glasgow’s Adam Smith Business School

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