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What to Expect in Global Economy from Trump's Victory?


Donald Trump’s victory in the presidential election used to be seen as something unlikely but this unexpected scenario finally manifested itself. Donald Trump is going to become the 45th U.S. President on January 1st, 2017.

 

 

 

 
Without any doubt, his policies will be influencing the U.S. economy as well as the entire global economy for at least the next 4 years. Economic questions seem to be the most urgent questions for the Americans this fall. According to the survey conducted by Pew Research Center, 84% of the respondents rated this block of questions as extremely important.
 
Apparently, this has to do with the fact that over the period of Obama’s presidency, the well-being of the American middle class has failed to even reach the pre-crisis level. According to the U.S. Census Bureau, even though the median household income in the USA increased by 5,2% all the way up to $56,52K a year in 2015, the figures still failed to touch the 2007 level of $57,42K a year. At the same time, the report says that 43 million Americans are now living behind the poverty line.
 
Meanwhile, Donald Trump has been trying to persuade the American people that in case of his victory, their financial well-being is definitely going to improve a lot. Well, now Mr. Trump is the U.S. President-Elect, and the Americans are looking forward to positive changes promised by him (actually, only a part of the American people, while the rest are still reluctant to accept the fact that Mr. Trump is the 45th President of the U.S.).
 

 

Mr. Trump promises to reform the U.S. taxation system. In particular, he is planning to cancel the inheritance tax, introduce tax cuts, including cutting the max tax rate from 39,6% all the way down to 33%. Everyone seems to be waiting for the promised easing of the tax burden. 
 

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According to Wealth Factory, the poorest Americans (under $23K a year) are going to see their tax shrink by 0,9% on average while the USA’s richest people are waiting to pay up to 11,5% less taxes on average.
 
As for the corporate income taxes, they are now as high as 35%. Mr. Trump promises to cut them to 15%, which is a brave promise. According to him, this step is going to allow the USA to compete with the UK, Ireland and other countries for tax residency. The thing is that due to high corporate income taxes in the USA, many of the U.S. companies moved to those countries to pay less taxes, and President-Elect Trump is going to try to bring them back as a part of his ambitious plan to make American great again (by the way, that was his election slogan).
 
Still, there is the reverse side of the coin. According to the recent research conducted by Tax Foundation, the U.S. budget will receive $4,4-5,9 trillion less over the next 10 years due to those tax reforms. At the same time, all those tax cuts are likely to inflate the budget deficit even more. The research conducted by National Securities shows that those fiscal policies are likely to increase the U.S. deficit by $5,3 trillion over the next 10 years. Also, this means a deficit increase from 75% all the way up to 105% of the GDP.
 
At the same time, the billionaire and President-Elect suggests both cutting taxes and introducing infrastructural investments to the amount of at least $500 billion. The bottom line is that amid those plans, Mr. Trump’s promises that the U.S. economic growth will allow the government to start paying off the debt now look impossible to implement.
 
Another key focus of Mr. Trump’s attention is going to be the rate of unemployment. Over the years of Obama’s presidency, the amount of unemployed Americans is said to have increased all the way up to 14 million people. Mr. Trump promises to address this issue by creating new jobs and fighting illegal immigration to the USA.
 
At the same time, American mining companies are likely welcoming Trump’s victory since he promises to cancel all those production caps in the mining industry for coal, natural gas, and crude oil. If that’s the case, this is going to bury Obama’s Clean Power Plan designed to cap toxic emission in each state.
 
The bottom line is that more and more economists and financial experts say that Trump’s policies may well bear considerable risks threatening the entire global economy and international financial markets. Investors expected Hillary Clinton’s victory and are still shocked with the results. Most of them don’t know how to act and are waiting for more signals to make another decision.

As for the Fed’s interest rates, the Fed is likely to postpone another interest rate hike. Before Trump’s victory, the likelihood of another interest rate hike used to be 82%, now it’s under 50%. If the economic situation were stable, the Fed could implement this plan in December. But given the unexpected results of the U.S. presidential election, the existing uncertainty makes this plan less likely.
 

 

On top of that, Donald Trump promised to revise the USA’s trade relations with Mexico and Canada, not to mention China and other trade partners. He is going to introduce a 45% duty on any import coming from China. This policy may result in violating the USA’s WTO obligations and triggering a full-fledged trade war with China.

 

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