Low growth, high debt and escalating wars topped the official agenda at the annual meetings of the International Monetary Fund and the World Bank, but financial leaders around the world devoted much of their energy to worrying about the potential impacts of a return of Donald Trump to power in the US presidential election in November.
Republican candidate Trump has managed to get closer to his Democratic opponent, Vice President Kamala Harris, in the polls, erasing much of the latter’s initial advantage, a topic that dominated almost all conversations between finance officials, central bankers and advocacy groups. civil society who attended meetings in Washington last week.
Among the concerns was Trump’s potential to upend the global financial system with massive tariff increases, trillions of dollars more in debt issuance and a rollback of work to fight climate change in favor of greater energy production. from fossil fuels.
“Everyone seemed concerned about the great uncertainty over who will be the next president and what policies will be adopted under him,” 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 cuts, from extending all 2017 individual tax cuts to exempting tip income, overtime pay and Social Security retirement benefits. Budget analysts say this would add at least another $7.5 billion in new U.S. debt over a decade, on top of the $22 billion in debt growth previously estimated by the Congressional Budget Office through 2034. .
Harris’ victory, by contrast, 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 tax reforms. development banks. 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 backed this “targeted” approach, describing Trump’s sweeping tariff plans as a $4,000 consumer tax on American families.
Markets bet on Trump
Financial markets are seeing a return to trading related to the expectation of a Trump victory in assets ranging from stocks to Bitcoin to the Mexican peso 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 .DXY, which measures the greenback against major 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 favor of Trump were already having an inflationary impact on long-term interest rate futures in Brazil’s dollar-sensitive economy. and added that both Trump 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 been largely won without major job losses, at a time when US strength was offsetting the weakness in China and Europe.
IMF Managing Director Kristalina Georgieva urged 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 Fed’s half rate cut should typically signal a “Goldilocks” moment for emerging market growth as financing conditions and inflationary pressures ease. about currencies.
But America’s larger deficits under a Trump presidency already have some worried that the party could end quickly.
“A higher deficit means a growing debt, a growing debt means higher long-term rates and that can also mean a strong US dollar,” Turkish Finance Minister Mehmet Simsek said during an event on the sidelines of 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 in the world,” 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-Jadaan, emphasized 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,” said Angolan Finance Minister Vera Daves de Sousa. “Every challenge is an opportunity to reorganize ourselves and learn to face it.”
Connect with the Voice of America! Subscribe to our channels YouTube, WhatsApp and to newsletter. Turn on notifications and follow us on Facebook, x and instagram.
Add Comment