Donald Trump's victory, what economic consequences? – 12/11/2024 at 07:59

Winner of the American presidential election, Donald Trump will return to the White House next January. What impact will this new Republican presidency have on the global economy? Pierre Jacquet engages in a critical analysis of the president-elect's economic program.

Almost everything has now been said about the potential implications of Donald Trump's spectacular return to the presidency of the United States. Rather than repeating everything that other analysts have already noted very well, I retain three ideas in this column: the incoherence of its economic program, the lesson to be learned about the attractiveness of liberal democracy, and the economic implications and strategic for Europe.

Donald Trump's economic program is fundamentally incoherent. Not that we should ideologically exclude all protectionism: that's another debate. But his conception of protectionism as a panacea to be used without restriction to resolve American problems is doomed to failure for at least three reasons: first, it can only be inflationary, because even if exporting companies can be tempted to absorb part of the taxes on imports by reducing their margins, the bulk will be found in domestic prices, and this is in fact the very principle of protecting local businesses. While Trump owes his victory in part to the discontent of all those who suffered from notable declines in purchasing power and complain about inflation, there is a certain irony in seeing the support thus given to a protectionist strategy!

Second, protectionism is also not a response to the American external deficit. The accounting existence of the latter is a macroeconomic problem, an excess of expenditure in relation to income or, identically, an excess of investment in relation to national savings. This gap is financed by foreign savings (for many reasons, including the role of the dollar), and the accounting counterpart is an excess of imports compared to exports. Targeting China or the EU may have an impact on bilateral trade balances, but not on the overall balance. Moreover, protection against imports also amounts, on an economic level, to implicitly taxing exports! Indeed, the production of the latter uses imported inputs, on the one hand, and the protection provided to companies competing with imports increases costs for the entire economic fabric. It is therefore a very unconvincing strategy.

Third, any American protectionism will be followed by retaliatory measures, which, as the experience of the 1930s has shown, harms trade, consumers and producers, without benefiting anyone. Certainly, Donald Trump considers protectionism as a weapon that he does not care about knowing how to use in his transactional approach to international relations, and we can therefore expect him to adjust this use depending on the agreements he obtains and pressures it will also receive domestically when the costs arise, but it is unlikely that it will obtain more open markets for American products through this.

The failure of the model of liberal democracy represented by the Democratic Party

One of the most important lessons of the American election seems to me to be rather that of the failure of the model of liberal democracy represented by the Democratic Party. It is something to be meditated upon by European elites always tempted by the easy determinism of technocratic solutions, even if they are based, which is sometimes but not always the case, on proven scientific certainties. There is a need both for more debate and explanations, but also and above all for a feeling of inclusion which is often lacking: to show that public policies take into account the negative effects for sections of the population which suffer them, take more interest in the implementation processes, the redistribution effects, reward effort and not just income – financial or situational. The reading to be made of the American election is that, in a period characterized by heavy needs for change and transitions, the model of liberal democracy is struggling to prove itself in the face of possible alternatives. If we do not want the latter, a return to forms of authoritarianism or despotism, it is urgent, on this side of the Atlantic, to rethink the foundations of our social contracts. Vast program, the political blockages of which unfortunately do not seem to outline the outline in an insufficiently peaceful democratic context.

Finally, this election also presents major strategic challenges for European countries and the European Union. Trump's message is that the organization of the world belongs to the powerful, and if the United States has to debate it with anyone else, it will be China, not Europe. The latter must know how to join forces to build a multipolar world and not suffer a bipolar scenario, to exist as a force for proposals and action. This first involves restoring internal order, and on this level, the Draghi report must be taken seriously and inspire European policies. This is unfortunately off to a bad start, because the Union is struggling within the shackles of rules and ideologies that are hardly compatible with such a surge, nor with a more convincing political existence on a global scale. This also involves a more sustained dialogue with China, which may find it in its interest to come to an agreement with the Europeans. To do this, we must overcome prejudices, prejudices and universalist pretensions which can and must inspire our long-term visions but can hardly guide the search for international agreements.

The positive point is that the European Union has never known how to act better than in the face of major challenges: let's accept the omen!