Reports: If Trump elected… his return could fuel inflation and strain the economy
With about two months left until the US presidential election, Republican candidate Donald Trump and his Democratic rival Kamala Harris continue to try to attract voters through the economy.
The economic aspect of living is a top priority for the American voter in determining his candidate in the upcoming elections, after nearly 3 years of high inflation, which in June 2022 recorded the highest level in 41 years.
Therefore, the US elections, two months before voters’ head to the polls, are turning into an arena for economic conflict, amid pledges from the competitors to manage the economy properly.
As American voters face choices not only between different policies but also between different policy goals, the economy is the main arena of competition.
Vice President Kamala Harris, the Democratic nominee, has yet to fully detail her economic agenda, but she is likely to maintain the core tenets of President Joe Biden’s platform.
Biden’s program includes strong policies to maintain competitiveness in the global economy, preserve the environment, lower the cost of living, maintain growth, enhance national economic sovereignty and resilience, and reduce inequality.
In contrast, her opponent, former President and current candidate Donald Trump, has no interest in creating a more just, strong and sustainable economy.
Instead, Trump is trying to impose the US economy’s dominance on the world as a whole, by imposing new tariffs of more than 60% on goods imported from China.
Not only that, but he is also heading towards creating tensions with the European Union, by imposing customs duties of up to 10% on imports coming from the old continent.
Trump’s proposal to impose comprehensive tariffs of 60% or more is a conduit for inflation returning to the pockets of American consumers, who will bear the burden of the increase in commodity prices – and no one else.
JPMorgan says its calculations suggest that implementing Trump’s proposed tariffs in full could reduce real US GDP by 0.3% to 0.5% in 2025.
“We estimate that the net impact of tariffs and lower energy prices could lead to a 1.5% to 2% increase in the consumer price index,” JPMorgan added in a research note issued at the end of last August.
Raising taxes on a particular good would raise prices, not only for goods imported directly from China, but also for countless other goods that contain Chinese inputs.
As a result, low- and middle-income Americans will bear the brunt of the cost, with inflation likely to rise and the Federal Reserve forced to raise interest rates.
Based on the above, the US economy will be affected by a triple blow represented by slow growth, high inflation, and high unemployment rates.
After inflation hit a 41-year high in June 2022 at 9.1%, the Fed was forced to raise interest rates to 5.5%, the highest level in 23 years.
Because of the monetary tightening, there are fears today that the US economy will slide into recession by the beginning of next year, if there are no signs of market stimulation through a further decline in inflation and a significant reduction in interest rates.
But Trump’s economic pledges in his election platform are stoking fears that the Fed’s two-and-a-half-year effort to raise interest rates could be undermined by moves by the White House to impose tariffs.
Another important issue is related to Trump’s position, which is threatening the independence of the Federal Reserve, which may be the first interference in the independence of the Federal Reserve’s decision since the 1970s.
Global investment banks have warned that any interference in the independence of the Federal Reserve means interference in the most important global central bank that leads the dollar, which accounts for 80% of global trade, 66 percent of payments via the SWIFT international transfer system, and 57% of the International Monetary Fund’s reserves.
