Start praying – we face an economic earthquake if Donald Trump becomes President
November 8th, 2016
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There are many reasons why people might be concerned about a Donald Trump victory – from his attitude to women to his endorsement last week by the Ku Klux Klan. But what would a Trump presidency mean for the world economy?
I fear we would wake up on Wednesday facing a global recession within the next 18 months. In the immediate term – I’m talking hours and days – it’s extremely likely the US stock market would plunge.
When it was announced that Hillary Clinton’s private email server was back under investigation, the Dow Jones fell by 125 points – about 0.7 per cent. If the mere prospect of a Trump victory so spooks the market, imagine if he actually won.
Leading hedge fund managers I’ve spoken to estimate a fall of around 5 per cent. And this would not be confined to America – in our interconnected world it would also mean falls in Frankfurt, Tokyo, and London. Anyone with a UK pension, or a stocks and shares Isa would see the value of their investments fall.
The impact of Trumponomics longer term is arguably of even more concern. Throughout the campaign he has threatened to tear up trade agreements and impose a whopping 45 per cent tariff on Chinese goods. Were Trump to make good on his protectionist rhetoric, we could be facing a major global trade war.
This may, of course, all be bluster, and presidential power is not absolute. But history teaches us not only that US Presidents tend to deliver on their main campaign pledges, but also that America is not averse to using protectionism when it suits. Remember Obama’s tariffs on Chinese tyres a few years back?
But the extremes to which Trump appears willing to take trade barriers would cause a global trade earthquake. It would inevitably lead America’s trading partners to retaliate in a destructive cycle.
The respected Peterson Institute estimates Trump’s trade barriers would send America into a recession within two years. And when the US sneezes, the world economy catches a cold.
Then there’s Trump’s take on foreign policy – or rather his wantonness when it comes to geopolitical stability. His proposal to scale back Nato would provide a welcome opening for China and Russia, both of whom would relish the opportunity to eclipse the US’s role as global policeman. A world led by Russia or China is less likely to be one in which Western investment and trade will flourish.
So there’s a host of reasons why Trump’s policies would have dire consequences – even without the question of his temperament.
A thin-skinned man-child, too proud to do his homework, many believe Trump would make a highly impulsive world leader – and an irrational one.
Only last week, 370 economists, including eight Nobel Laureates, signed a letter warning against a Trump victory because ‘he promotes magical thinking and conspiracy theories’.
And we all know how much markets hate uncertainty.
The US think-tank the Brookings Institution estimates a Trump presidency would knock ten per cent off the value of the FTSE 100 and lead to a three per cent fall in the pound.
So I’m not surprised the markets are quaking. If anything, I’m surprised at how long it’s taken them to price in The Donald risk.
If we really do have an angry reality TV star running the world’s largest economy, perhaps it’s time we all started praying.
Noreena Hertz is the ITV News economics editor.