Mr Trump’s promises to declare increased tariffs on Chinese imports, punish companies that offshore their production and pull out of the Trans-Pacific Partnership all indicate an anti-trade stance, said Standard Life Investments’ chief economist Jeremy Lawson.
This anti-trade rhetoric “comes at a time when globalisation has already been slowing down”, said Mr Lawson, meaning that “the global economy has lost one of its major engines of growth”.
“A stalling in globalisation is negative for the global economy and will help to trap us in a world of lower numbers,” Mr Lawson said.
“But stalling is better than going backwards, hence the focus on what Trump’s real intentions are as president. The scenario that appears to be priced into markets is that he uses heightened rhetoric to secure better access to foreign markets for US firms, while offering additional incentives for US firms to locate more production at home within the scope of existing trade arrangements.”
Mr Lawson warned investors that “a much more negative outcome is also possible”, wherein Mr Trump pursues a more aggressive protectionist stance.
“For example, a president need only give six months’ notice to leave the North America Free Trade Agreement. He could then invoke other statutes to substantially lift tariffs on some, or all, of the US’s trading partners,” he said.
“This scenario would likely lead to retaliatory action from trading partners, lawsuits with companies, tighter labour supply and chaos within Congress.”.
The consequence of such an approach, Mr Lawson said, would be a drop in business investment followed by a recession, which would in turn drive up import price inflation and unemployment.
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