Trump’s electoral victory was complete. In addition to the electoral college and absolute votes, his party retook the Senate and should maintain the majority of deputies in the Chamber. The execution of its agenda, therefore, will not need to be limited to what it can do with executive measures, gaining strength to also incorporate the legislature when necessary.
Or Trump’s love for tariffs
Four areas can be highlighted in which his campaign has already pre-announced measures. First of all, commercial rates. In a speech to the Economic Club of New York in October, he said he “stopped wars with the threat of tariffs.” At another point, he said “tariff” was his favorite word in the dictionary.
Among other measures, Trump has already mentioned two possible ones: a 60% tariff on all Chinese imports and a universal 10-20% tariff on all imports. Throughout the campaign, he mentioned others of varying sizes about products from other countries. It has even threatened to impose 100% tariffs on countries that threaten to abandon the US dollar as the global currency of choice.
While the Democratic administration pursued a “risk reduction” in exposure to the Chinese economy, citing national security reasons, through protection policies, blocking access to technology and subsidies for local production in semiconductors and clean energy, it can be said that the Trump’s announcements point towards the search for a total “decoupling or dissociation” between the two economies.
As in all mercantilist policies, based on the belief that the opponent loses and local production wins, there is always an underestimation of the negative impacts on all sides, including third countries. Trump’s tariffs against China in his previous administration ended up negatively impacting US manufacturing employment, not to mention the agriculture lost to Brazil in the Chinese market.
For those who think that third countries can benefit as “connectors” between the US and China – such as Mexico, Vietnam, Malaysia and others – it is worth noting that a “decoupling” pursued by the US administration should not attempt to leave such connections untouched.
Trump has compared trade wars to boxing matches. It is worth noting that the increase in the cost of living for US citizens as a result of the tariffs will be part of the impact suffered by the side that strikes, in this case. Not by chance, Kamala Harris called Trump’s tariff proposal a “U.S. consumer tax.”
Tariffs are a tax on imports. Trump said that the tax would be paid by foreigners, that is, that they would absorb the impact without passing it on to prices. But this would mean the absence of the effect of import substitution for local production.
The most likely result will be an increase in domestic prices. Some argue that the inflationary effects of Trump’s tariffs in his first administration were minimal. However, Trump’s new proposals would apply to a much larger portion of foreign purchases. The impact on prices will be much greater than the relatively modest “initial protectionism” of Trump’s first term.
It is worth noting that a tax on imports is also a tax on exports, due to the fact that tariffs are partly a cost for exporters who depend on importable inputs. This will necessarily make such exports less competitive. Thus, the high tariffs pre-announced by Trump will tend to expand less competitive import substitution industries, but contract highly competitive exporters. Foreign retaliation against U.S. exports would compound this harm. Such effects were seen during Trump’s trade war against China in his first term.
Where there is little doubt is the recessive effect on the global economy, particularly with the likely retaliatory responses from other countries. Going through a Chinese slowdown, but also in other countries. At the IMF’s annual meeting in Washington, DC, in October, Christine Lagarde, head of the European Central Bank, said new trade barriers could renew global inflationary pressures and reduce global GDP by up to 9% in its worst-case scenario.
Fiscal and tax policy
A second area where Trump has already given signals is tax and taxation. In the fiscal field, the public deficit in the USA tends to increase substantially.
Trump has shown an inclination to make all the cuts approved by Congress in 2017 permanent, which will be facilitated by the Republican victory in the Senate and Chamber of Deputies. That year cuts to corporate income tax rates were made permanent, while cuts to individual income and inheritance taxes were set to expire at the end of 2025. Trump wants to make them all permanent, as well as add other items – like tips . Trump talked about restoring tax revenue through tariffs, but no one thinks this is possible.
On the expense side, even cutting the expense provided for in the semiconductor and clean energy laws (“Chips Act” e “Inflation Reduction Act – IRA ”), substantial cuts will not be possible without shrinking social spending, such as “Medicare”. Analysts project that Trump’s proposals will increase the federal debt. The nonpartisan Committee for a Responsible Budget estimates that Trump’s plans could add $7.5 trillion to the bill.
Some economists and foreign investors consider the risk of a long period of higher interest rates in the United States to be worrying. They fear that not only new tariffs but also larger American deficits could increase U.S. inflationary pressure, prompting the Fed to extend its period of tighter monetary policy.
Energy
In the energy area there were also signs of Trump, with consequences for the battle between fossil fuels and renewables. Demand for US electricity will increase due, among other reasons, to the voracious energy needs of data centers, accompanying “artificial intelligence”.
Republicans, led by Trump, are focused on fossil fuels, promising to “drill and drill.” The outcome of the election, therefore, will have implications for the energy transition in the country and, therefore, the world. Trump called the IRA a “socialist mammoth.”
It is no coincidence that the prices of industrial metals have evolved in the recent past with the electoral probabilities established in voting intention surveys. They are sensitive to the outcome of the election, as meeting growing energy demand with solar and wind will put more pressure on the electrical grid (the response to which would be copper, aluminum and other intensive) than with fossil fuels.
Trump promised to stop wind projects offshore on “day one” if he is re-elected. In fact, he even promised to end the IRA, with its tax credits to reduce the cost of renewable energy and boost the pace of decarbonization.
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Consultancy BloombergNEF has estimated that repealing the IRA will result in a 17% drop in new renewable capacity additions from 2025 to 2035, with offshore wind being hit the hardest, falling 35%. It is no coincidence that shares in the renewable sector collapsed on that first day after the elections.
Immigration
The outcome of the election is also expected to have a significant impact on US immigration. Trump proposes actions such as ending birthright citizenship for people born in the US whose parents are in the country illegally. It also alludes to the forced deportation of illegal immigrants – something considered difficult to implement according to legal professionals. With Trump winning, weaker immigration is expected, as was the case during his first term in 2016-2020.
It is worth noting the role that immigration has played in the United States labor market. Without the return of immigration in the most recent period, the US would not have delivered the extraordinary performance relative to its advanced peers over the past 2 years. Increased labor supply and immigrant demand for goods and services have driven GDP growth, according to a recent report from the Federal Reserve Bank of Dallas.
Implications for Brazil
More immediately, Trump’s election is already having an impact on Brazil through monetary and exchange rate transmission channels. The appreciation of the dollar in relation to other currencies that has already accompanied the electoral polls in favor of it also reached the real, today (6) inclusive. The prospect of higher interest rates, steepening the curve, accompanied the prospect of higher inflation in the US, as well as a possible future reduction in the country’s current deficits. It is no coincidence that enormous pressure is expected from Trump on the Federal Reserve in the future to reduce basic interest rates by force…
READ MORE: More inflation, less taxes: what Trump’s victory means for the US economy
More than ever, the demand will increase for the Brazilian government to give firmer signs of reducing the fiscal imbalance in the near future, in order to prevent the country risk premium from intensifying the effect of the appreciation of the dollar and long interest rates higher rates in the US on the exchange rate and inflation in Brazil.
In the commercial area, it is even possible that the shift in Chinese agricultural demand from the US to Brazil that occurred during the US-China trade war in the first Trump administration – a shift not reversed later – could have additional momentum with new rounds of retaliation in the war.
Bilateral Brazil-USA trade has evolved, in the recent past, from deficits on the Brazilian side to balances close to zero. The rise in local agricultural exports – meat, sugar, oils and fats – and the reduction in Brazilian purchases of fossil fuels helped in this direction, while the Brazilian bilateral deficit in manufacturing has grown in recent years.
There is sensitivity, on the other hand, regarding Brazilian exports of metallurgical products. One must bear in mind the demands by US steel manufacturers that tariffs be imposed on Brazilian steel exports.
Brazil does not appear to be the focus of Trump’s trade policy, like China and the “connector countries”. But it is worth noting that in an April interview with Time magazine, Trump referred to Brazil as “a country with very high tariffs”. The Brazilian geopolitical non-alignment and the repeated references to replacing the dollar, however, could bring it closer to that focus.
