He low growth, high debt and escalating wars headed the official agenda of the annual meetings of the International Monetary Fund (IMF) and the World Bank (WB)but financial leaders around the world devoted much of their energy to worrying about the possible impacts of a return of donald trump to power in the American presidential elections November.
The Republican candidate trump has managed to get closer to his Democratic opponent, the vice president Kamala Harrisin the polls, erasing much of the initial advantage of the latter, an issue that took over almost all the conversations among finance officials, central bankers and civil society groups who attended meetings in Washington last week.
Global economic leaders fear Trump’s potential to upend global financial system
Among the concerns was Trump’s potential to upend the global financial system with massive increases in dutytrillions of dollars more in issuance of debt and a setback in the work to fight the climate change in favor of greater energy production from fossil fuels.
“Everyone seemed concerned about the great uncertainty about who will be the next president and what policies will be adopted under his leadership,” he said. Kazuo Ueda, Governor of the Bank of Japan. Another central banker, who spoke on condition of anonymity, described the concerns more directly: “It’s starting to look like Trump is going to win.”
Trump has promised to impose a 10% tariff on imports from all countries, and 60% tariffs on imports from China. This would disrupt supply chains around the world, likely triggering retaliation and increasing costs. German Finance Minister Christian Lindner told Reuters on Friday there would only be losers in a trade war between the United States and the EU.
Trump has also tried to appeal to American voters with offers of numerous tax cutsfrom extending all 2017 individual tax cuts to exempting tip income, overtime pay, and Social Security retirement benefits. Budget analysts say that This would add at least another $7.5 trillion in new US debt.e for a decade, on top of the $22 trillion in debt growth previously estimated by the Congressional Budget Office through 2034.
Harris’ victory, on the other hand, is seen by financial leaders as a continuation of President Joe Biden’s new commitment to multilateral cooperation over the past four years on climate, corporate taxes, debt relief and development bank reforms. His plans are also likely to increase debt, but much less than Trump’s.
Biden maintained Trump’s previous tariffs on imports of steel, aluminum and Chinese goods, but sharply increased them on Chinese imports in new sectors such as electric vehicles and solar energy. Harris has endorsed this “targeted” approach, describing Trump’s sweeping tariff plans as a $4,000 consumer tax on American families.
The markets’ bet on Trump
Financial markets are however seeing a return to trading related to the expectation of a Trump victory in assets ranging from stocks to bitcoin passing through the pthat mexican as his poll numbers have improved.
The dollar has seen its biggest monthly rise in more than two and a half years: the dollar index, which measures the greenback against the main currencies, has risen 3.6% so far in October. Standard Chartered analyst Steve Englander attributed 60% of the dollar’s rise to Trump’s improving prospects in betting markets.
Brazil’s central bank governor Roberto Campos Neto said market bets in Trump’s favor were already having a inflationary impact on long-term interest rate futures in the Brazilian economywhich is sensitive to the dollar, and added that both Trump’s and Harris’ tax plans had inflationary elements.
Concerns about a Trump pivot on trade and spending arose when the IMF declared that the global battle against inflation had largely been won without major job losses, at a time when US strength was offsetting weakness in China and Europe.
The managing director of the IMF, Kristalina Georgievaurged monetary leaders to start reducing a huge amount of Covid-induced debt or face a future of low growth that would leave populations increasingly dissatisfied.
Asked how the specter of a Trump comeback impacted the IMF’s meetings and policy advice, Georgieva said discussions had focused on resolving current economic problems. “Members believe the elections are for the American people,” Georgieva said at a news conference. “What it is up to us to identify is what the challenges are and how the IMF can constructively address these challenges.“.
Emerging tensions
The half-point rate cut of the Federal Reserve should normally point to a moment Goldilocks (ideal non-excessive growth scenario) for the growth of emerging marketsas financing conditions and inflationary pressures on currencies relax.
But America’s biggest deficits under a Trump presidency already have some worried that the party could end quickly.
“A higher deficit means growing debt, growing debt means higher long-term rates and that can also mean a strong US dollar,” he said. Turkish Finance Minister Mehmet Simsekduring an event outside the meeting. “High long-term interest rates in the United States and a strong dollar do not benefit emerging markets,” he said.
Fears of a global trade war slowing the easing of inflationary pressures were widespread. “If one country imposes tariffs, it is assumed that other countries will not respond in the same way, but if other countries respond by imposing tariffs around the world and prices rise, the disinflation process could become a challenge for central banks of the world,” he said Lesetja Kganyago, Governor of the Central Bank of South Africa.
The chairman of the IMF steering committee, Saudi Arabia’s Finance Minister Mohamed al-Jadaanemphasized past cooperation with Republican and Democratic US administrations, including Trump’s: “We just have to make sure we continue that dialogue.” Others also agreed with this statement in the meetings.
“I think we managed to deal with so many things, Covid and geopolitical tensions and everything,” he said. the Minister of Finance of Angola, Vera Daves de Sousa. “Every challenge is an opportunity to reorganize ourselves and learn to face it.”
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