ING, among other things, wrote this in its report on Trump’s possible victory in the American presidential election. The former president has risen in opinion polls in recent weeks.
Financial markets are also pricing in a higher likelihood of Trump’s return to the White House, reports ING economist Bert Colijn. This is reflected in higher American capital market interest rates and a stronger dollar.
According to Colijn, campaign promises should not be taken literally. But Trump’s plan seems to encourage inflation more than Kamala Harris’s intentions. For example, Trump wants to lower taxes and raise import tariffs significantly.
Tax cuts stimulate consumer spending, which increases the likelihood of firms raising prices. Trade tariffs create higher costs for companies, which they then likely pass on to their customers.
Import price
The American economy is doing well, while European economic growth expectations have been adjusted downwards. The resulting weakening of the euro is still good news for Dutch exports. But if Trump is indeed elected and import tariffs are indeed raised significantly, Colijn writes, the picture could change quickly.
Additionally, a weaker euro leads to higher import prices. This impact is immediately visible in gasoline prices, because oil is paid for in dollars. More expensive gasoline leads to higher inflation. In other eurozone countries, few people are worried about this, as monetary depreciation has now fallen below the desired 2 percent figure. However, inflation in the Netherlands is still very high and additional stimulus is undesirable.
Rabobank also pointed out the risks the American presidential election poses to the Dutch economy. According to economists at the bank, the consequences of Harris’ victory are limited.
But a Trump victory could lead to inflation of 3 to 3.8 percent and reduced economic growth. In the long term, according to Rabobank, the Dutch economy will be 5 to 10 billion euros – 0.4 to 0.9 percent – smaller if Trump wins than if Harris wins.
Polarization
The two banks’ findings are in line with worrying voices heard last week at the annual meeting of the International Monetary Fund (IMF) in Washington. Without naming Trump or Harris, the IMF warned that no one in the global economy would benefit from further polarization.
Reciprocal tariffs of 10 percent between the United States, the euro zone and China and related financial turmoil could have an adverse impact of 0.8 percent on the global economy next year, the IMF warned. A year later, the global economy will grow 1.3 percent lower than the existing policy scenario.