The Economic Impact of a Trump Presidency on US, Global Markets


Donald Trump’s election roiled global markets Tuesday night.

Things have mostly settled down Wednesday. Is more market volatility in store?

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The president-elect has promised massive tax cuts, trillion dollar infrastructure spending and the tearing up of trade agreements.

So what will be the impact of a Trump presidency on the economy here and abroad? 

Below, an edited Q&A with Ed Stuart, professor emeritus of economics at Northeastern Illinois University; and Michael Miller, associate professor of economics at DePaul University’s Driehaus College of Business.

Chicago Tonight: Markets dipped last night and rebounded this morning with Trump’s speech. Will there be more volatility ahead?

Miller: There will be some more uncertainty because we don’t know how the Fed will react. We do know that markets don’t like uncertainty. Trump can do no damage  -- or good -- until he proposes something to Congress.

Stuart: This was a shock. So some folks late last night got out of the market and got their money. But then Exxon and Chase stock holders thought that this could be great for corporate profits. It took those folks about 5 or 6 hours to figure things out. But let’s be clear. The stock market isn’t the economy – they are very different.  

What do you think the future of the Dodd-Frank Act regulations will be?

Stuart: It’s in danger. There’s another financial crash in the future. We’ve seen this isolationist behavior before with Herbert Hoover.

Miller: It’ll probably be reconsidered. Republicans evaluate policies on a cost-benefit basis. There will be some kind of amendment to make it more streamlined and to avoid the negative consequences of Dodd-Frank.

Trump’s individual and corporate taxes cuts could cost as much as $6 trillion according to the nonpartisan Tax Policy Center. What do you think the tax impact will be on the U.S. recovery?

Miller: Trump wants three brackets for personal income tax: 12 percent, 25 percent and 33 percent. Reagan’s top tax rate peaked at 33 percent and the economy did fine. With the lower tax rate, he’ll probably reduce deductions. He wants to reduce the corporate tax rate from 35 percent to 15 percent. Trump thinks this will lead to 4 percent growth but that’s way too optimistic for growth. There will be some growth, but there will be larger deficits with the kind of spending that Trump wants to do.

Stuart: Reagan cut taxes in the first years of his administration and then the Fed raised interest rates 5 percent or 10 percent and that crashed the economy. This scenario is possible.

Trump has pledged to rebuild infrastructure “which will become second to none.” He has a “trillion-dollar rebuilding plan.” Where will the financing come from, especially with reducing taxes?

Stuart: If there’s a tax cut and a higher deficit, interest rates will spike and folks in construction will be clobbered. Plumbers, real estate, brick layers, those jobs go away. Where is the financing coming from?  Trump doesn’t know. He doesn’t really have a plan or blueprint. Even Reagan had a theory that he spelled out. That’s why the Dow dropped 800 points last night because folks thought he didn’t have a clue.

Miller: Trump argues that it’ll come from growth—supply side economics. But we don’t know where the money is going to come from. Trump’s counting on a growth spurt, but I’m not convinced that’ll be enough.

What will the Fed now do with interest rates? Janet Yellen’s future?

Miller: Trump thinks the Fed is political and that’s wrong. They’ll have no choice but to raise interest rates over the next year or two. It’s the nature of economy right now that interest rates will stay at historic lows for the foreseeable future.

Stuart: The Fed probably won’t do anything in December. The Fed will wait to see what crazy plan is presented to Congress. The Fed is a creature of Congress and Congress can change the law so, for example, the Fed chair could serve at the pleasure of the House and Senate Finance Committee chairs, so it could be a political appointee. Yellen is there for another 12 years in her term. That can be changed.

Trade policies are now up in air. Trump pledged to pull out of the North American Free Trade Agreement (NAFTA) among others and wants to put tariffs on goods from Mexico and China. Will there be a trade war?

Stuart: A trade war is not an unrealistic expectation to forecast.

Miller: Hoping that Trump took an extreme view to pump up the base during the election and now when governing, he will be more willing to work with Congress and his advisors and be more reasonable. Hoping Trump will just tinker around the edges and will not blow up the trade agreements. Hoping he’ll govern from the center and listen to his free-trade advisors.

What do you see as a long-term global economic impact of a Trump presidency? 

Miller: If Trump gets everything he wants with trade and the Fed, the long-term economic impact will be negative on global growth. Globalization is good. But there are some casualties from globalization.

Stuart: We’ll probably see more regional economic isolation; Europe retreating into itself. But the folks to really worry about are the people who live in Ukraine and on the periphery of Russia. It really doesn’t look good for them.


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