With the global shock caused by last weekend's "assassination incident" and the repeated misstatements by current US President Biden that sparked calls for "replacement", support for Trump seems to be increasing in both the political and business circles.
But analysts warn that if Trump is re elected, his second term could reignite global inflation as his "America First" policy pushes up global costs. They pointed out that the economic agenda of high tariffs and low taxes was a characteristic of Trump's first term, and it itself was a factor that fueled inflation. And given that he won't easily change his' original intention ', the destructive power this time will be even greater.
Michael Metcalfe, Head of Macro Strategy at State Street Global Markets, said in an interview on Tuesday, "Trump's policies pose a greater risk of inflation in his second term than in his first term. Compared to 2016, inflation was consistently low and inflation expectations were low, but 2024 and 2025 will be very different. Inflation levels will be higher and inflation expectations will be higher
He added that this will not only affect price increases within the United States, but also impact Asia and Europe outside of the United States.
High tariffs+low taxes
Trump also mentioned these two things in a recent communication occasion. In June of this year, Trump promised a group of corporate executives to further reduce the corporate tax rate from 21% to 20%. He also stated on Tuesday that he hopes to lower the tax rate even lower, "I hope to lower it to 15%." Regarding tariffs, he confirmed that after taking office, he also plans to increase tariffs on the European Union.
High tariffs are often seen as a significant driver of inflation, as they increase the cost of imported goods, allowing domestic producers to raise prices and consumers to pay more. At the same time, tax cuts can stimulate consumer spending, thereby driving up the cost of goods and services.
According to a recent survey of economists, most people believe that inflation rates will rise due to Trump's tough protectionist stance. Nomura Securities' Gareth Nicholson stated in the latest report that rising inflation may also affect Asia. He said that Trump's election as president would mark an overall "negative risk factor" for Asian stock markets.
Macroscopically speaking, this will lead to inflation (and possibly stagflation) in the global economy and accelerate more supply chain transfers within Asia. Some companies have been diversifying production to mitigate the impact, "he wrote.
In Europe, Goldman Sachs predicted in a report last Friday that as higher tariffs put pressure on global trade, Trump's election as president could raise inflation by 0.1 percentage points.
Manulife's Marc Franklin agrees with this. He stated that Trump's inclination towards further tax cuts and comprehensive tariff plans may be a "combination of some degree of inflation re inflation".