Global Takeaways of the U.S. Election

Deglobalization and fragmentation are likely to gather momentum in a Trump 2.0 administration.

In our view, Trump winning the White House and having a largely unilateral ability to implement tariffs and shift U.S. trade policy in a more protectionist direction is yet another deglobalization force. During his first administration and over the course of his latest campaign, Trump has been unwavering in his commitment to tariffs. Time will tell how tariff policy ultimately evolves, but as our U.S. economists note in a post-election report, Trump’s tariff threats should be taken seriously. Global trade cohesion has suffered since the Global Financial Crisis and deteriorated further as a result of COVID. Erecting new barriers to trade will place additional pressure on the interconnectedness of the global economy, which can have longer-term negative implications for global economic growth, especially if retaliatory tariffs are imposed on the United States.

Fragmentation (i.e. countries choosing to strategically align with either the U.S. or China) is a product of deglobalization, and as U.S. trade and broader economic policy becomes more uncertain, strategic alignments could shift back toward China. We observed a noticeable shift in alignment patterns toward China during Trump’s first term, driven by countries opting for stronger trade relations with China, participating in China’s foreign investment programs and voting in unison with China on geopolitical issues at the United Nations General Assembly. With U.S. trade policy likely to turn more contentious and inward-looking, countries around the world could look to strengthen economic and geopolitical ties with China.

Trump will not be able to manufacture dollar depreciation

In our October International Economic Outlook, we noted how a Trump White House would lead us to become more positive on the U.S. dollar. Now that Trump has indeed won the election, we reinforce our view for a strong dollar over the course of 2025 and into 2026, and will become more positive on the dollar outlook in our next forecast update. As far as the dynamics surrounding a more constructive dollar view, in their post-election report, our U.S. economics colleagues noted the extension and possible expansion of the expiring provision of the Tax Cuts and Jobs Act (TCJA) in addition to the likelihood of higher tariffs.

Over the next few years, tariffs and looser fiscal policy could lead to higher U.S. inflation, and through reduced purchasing power of U.S. consumers and businesses, could also contribute to slower U.S. growth. With the Federal Reserve potentially cautious about the overall inflationary implications of the new administration’s policies, the U.S. central bank may lower interest rates more gradually than we currently expect. While there may also be some influence on foreign central bank monetary policy, we think the impact would be far more limited. Slower U.S. growth and tariffs would likely spillover to foreign economies, placing both growth and interest rate differentials in favor of the U.S. dollar over the longer-term. Sporadic bouts of markets volatility could also provide the dollar with safe haven tail-winds over the next 18 months. Also, despite any rhetoric aimed at weakening the dollar, Trump will be unable to influence the long-term direction of the dollar. In our view, Trump’s preference for a weaker dollar would have to be accommodated by and in coordination with the Federal Reserve, which we view as unlikely. We view the Fed as a monetary authority that is unlikely to pursue a weaker dollar at the direction of the President nor have its independence questioned by global financial markets.