Low growth, high debt and geopolitical escalation are on the official agenda for the annual meetings of the International Monetary Fund (IMF) and the World Bank, but financial leaders are largely concerned about the possibility of Trump's return to power in the US election in November.
Trump’s performance in recent polls has all but erased Harris’ early advantage and dominated nearly every conversation among finance officials, central bankers and members of social groups who attended a conference in Washington last week.
The fear is that Trump could upend the global financial system by sharply raising tariffs, issuing trillions of dollars in additional debt and reversing efforts to fight climate change in favor of more fossil fuel energy production.
“Everyone seems to be worried about the high uncertainty of who the next U.S. president will be and what policies the new president will adopt,” said Kazuo Ueda, governor of the Bank of Japan.
Another central banker, speaking anonymously, was more blunt about the concern: “It feels like Trump might win.”
Trump's vow to impose a 10% universal tariff on imports from all countries and other measures will hit global supply chains, likely triggering retaliatory actions and pushing up costs. German Finance Minister Christian Lindner said on Friday that a U.S.-EU trade war would only bring losers.
Trump has also tried to appeal to U.S. voters by offering a variety of tax breaks, from extending a 2017 personal tax cut to exempting tips, overtime pay and Social Security retirement benefit income from taxation, which budget analysts say will add at least $7.5 trillion to the U.S. debt over a decade.
Harris, by contrast, is seen as continuing Biden’s approach over the past four years to reengage in multilateral cooperation on climate, corporate taxes, debt relief and development bank reform. Her plan would also likely increase debt, but far less than Trump’s.
Harris supported a "targeted" approach and criticized Trump's broad tariff plan that would impose a $4,000 sales tax on American households.
The 'Trump trade' is back, with assets from stocks to Bitcoin to the Mexican peso betting on a Trump win.
The dollar has seen its biggest monthly gain in 2-1/2 years, with the dollar index up 3.6% so far this month. Standard Chartered analyst Steve Englander attributed 60% of the dollar's gains to Trump's improved odds in betting markets.
Brazil’s central bank president Roberto Campos Neto said bets on a Trump win in the dollar-sensitive economy have already priced in inflationary impacts in long-term interest rate futures, adding that both Trump and Harris’ fiscal plans have inflationary components.
The International Monetary Fund declared that the global battle against inflation had been largely won without major job losses, as its managing director, Kristalina Georgieva, urged policymakers to start reducing the huge debts incurred by the coronavirus pandemic or face a future of slow growth that will fuel growing popular discontent.
The Federal Reserve’s massive 50 basis point rate cut was supposed to mark a “Goldilocks moment” for emerging market growth, but the prospect of larger U.S. deficits under a potential Trump presidency has some worried the party could soon be over.
“Bigger deficits mean growing debt, and growing debt means higher long-term interest rates, which can also mean a strong dollar,” Turkish Finance Minister Mehmet Simsek said at a conference on the sidelines of the event. “High long-term interest rates and a strong dollar in the United States are bad for emerging markets.”
There are widespread concerns that the trade war could stall the easing of inflationary pressures. South Africa’s central bank governor Lesetja Kganyago said: “If other countries respond to one country’s tariff increase by also imposing tariffs, this will lead to higher prices and the anti-inflation process faced by global central banks may become challenging.”
Saudi Finance Minister Mohammed Al-Jadaan, who chairs the IMF’s steering committee, highlighted a history of cooperation with both Republican and Democratic U.S. administrations, including the Trump administration, saying: “We just need to make sure that we continue this dialogue.” This view was echoed by other participants in the meeting.
Article forwarded from: Jinshi Data
