Goldman Sachs examined the key Trump policy proposals — higher tariffs on trade, curbing illegal immigration, increased federal stimulus, tax cuts for corporations and Americans — and found that while the plan would give the US a short-term bump in GDP growth, it would be a drag on global growth. The near-term effects are positive because the fiscal stimulus package boosts US demand and this has positive spill over effects to other economies. However, the longer-term effects on US growth are negative because the fiscal boost peters out and the other policies — higher tariffs, reduced immigration, and tighter Fed policy — weigh on growth. The policy proposals have negative spill over effects on other economies, especially in emerging market economies with partially fixed exchange rates or US-dollar based economies. The reason for the greater impact there is that the Trump agenda is likely to result in higher US interest rates and therefore a stronger dollar. Essentially, lower imports to the US and a stronger dollar from Federal Reserve rate hikes, combined with higher servicing costs for debt held in dollars, would curtail economic activity, especially in emerging markets, and drive global GDP lower than it would be otherwise. Global growth is expected to be 0.1% lower annually than the baseline projection without Trump’s policies by 2020. While this may not seem like a lot, global growth was at only 3.1% for 2015, and analysts call anything under 2% growth a global recession, so there is little room for negative shocks.
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