With the US Republican primaries effectively over as a contest in less than two weeks, TV viewers, political pundits and anyone with an interest in the fate of the global economy can be forgiven for focusing instead on the implications of a once unthinkable yet increasingly likely scenario: the return of Donald Trump to the White House.
Such a return may yet be stymied by a fightback by Joe Biden (who trails Trump in several key battleground states), a series of legal battles that include four criminal indictments, or the comeback to end all comebacks from his Republican primary opponent Nikki Haley.
Yet, in an increasingly fraught geopolitical environment, politicians, bankers and business people have been increasingly thinking about what Trump’s return to the helm of the world’s largest economy means for the rest of the world, particularly with regard to geopolitics, trade and deregulation on environmental concerns.
Trump’s tightening grip on the Republican nomination has prompted the party’s minority leader in Congress to walk away from the US border security bill — which contains further military assistance to Israel and Ukraine, according to reports on Wednesday.
Russia-Ukraine conflict
While Trump has sent mixed signals on how he would tackle the widening crisis in the Middle East, there is greater concern over what his second presidency would mean for the Russia-Ukraine conflict. The former president has criticised Nato for its over-reliance on the US, and has boasted that he would be able to solve the conflict between Russia and Ukraine in just one day.
“Markets are sceptical about Trump resolving the Russia-Ukraine war immediately after winning an election,” says Derek Halpenny, head of research, global markets EMEA and international securities at MUFG.
“The biggest danger would be an attempt to pull the US out of Nato. Any move in that direction that became credible would hurt global sentiment and elevate geopolitical risks notably.”
While campaign trail suggestions of withdrawing from Nato are unlikely to be realised, growing Republican scepticism about Ukraine is likely to significantly impact US support.
“Even if Trump did not take the drastic step of withdrawing the US from the alliance, financial support for Ukraine might either be withdrawn or have strings attached,” says George Brown of asset management company Schroders.
Protectionism
While a change in the US’s interactions with Russia and Ukraine looms large, of greater concern is the prospect of Trump doubling down on his America First agenda, continuing a protectionist trend — predominantly centred on China and largely continued by the Biden administration — begun in January 2018.
Although the imposition of tariffs won the then president grudging respect for standing up to China, a report by the United States International Trade Commission found that US importers largely bore the cost.
“Those tariffs … have not only failed to achieve their objectives, but have hurt US businesses and consumers along the way,” the Council on Foreign Relations noted.
The continuation of protectionist measures — centred on a flagship pledge of a universal 10% tariff on imports — are likely to prove even more disruptive at home and abroad.
“Such a move would push up prices for American consumers, [and] would also likely be met with retaliatory measures, weighing on global trade and economic activity,” says Mr Brown.
“This would certainly be disruptive to global trade and would result in considerably larger trade frictions than in 2018–19 when much of the focus was on China, and Europe to a lesser degree.”
The move would also result in currency devaluations abroad, depending on the scale of tariffs introduced, says Mr Halpenny, translating into “a negative hit to global growth”.
Tensions may escalate further in 2026 when Mexico’s Nafta II trade deal comes up for review, he said.
Environmental deregulation
Deregulation — particularly within the environmental space — is another theme close to the former president’s heart, which is likely to be extended into a second Trump presidency. A survey by the Brookings Institute’s Center on Regulation and Markets classified 54% of the Trump administration’s rulemakings as deregulatory in nature, with environmental deregulation as the largest category.
A second presidency would likely take a similar approach, with Joe Biden’s Inflation Reduction Act — which focuses heavily on renewable energy investment — a prime target.
“Trump has pledged to revoke many of Biden’s climate change initiatives as part of his goal to ensure that America has the lowest cost of energy of any industrial country,” says Mr Brown.
While such efforts were held back in part during more moderate members of his first administration, Trump’s tightening grip on the party is likely to give him greater freedom in his deregulation efforts during a second administration.
“Trump has pledged to reintroduce his ‘Section F’ executive order, allowing him to replace civil servants with loyalists, which would enable him to pursue more radical deregulation efforts,” he says.
