Donald Trump’s clear (although not overhelming) victory in November’s  US Presidential election, combined with the Republicans’ capture of both Houses of the US Congress, puts him in a strong position to implement his agenda. The combination of swingeing increases in tariffs, the deportation of between 1.3 and 8 million migrant workers, a futher increase in an already-large budget deficit (at a time when the US economy is operating at close to full capacity), is likely to result in higher US inflation and, eventually, higher US interest rates. If President Trump succeeds in eroding the independence of the US Federal Reserve, the result may be further upward pressure on long-term US interest rates and a weaker US dollar (even though the dollar has initially strengthened in anticipation of stronger US economic growth). And the President-elect’s tariff policies will do no more to reduce the US trade deficit than they did in his first term (ie, nothing) – but rather, will redistribute it away from China to other countries. Sharply higher tariffs will have the biggest impact on lower-income families. And that will be compounded if other countries ‘retailate’ against whatever tariffs the Trump Administration imposes, by imposing tariffs of their own.

The incoming Administration’s policies will have implications for other countries, including Australia, although they will take time to show up – and they won’t have any impact on whatever the Reserve Bank of Australia decides to do (or not do) in the first half of 2025. Most recently the RBA appears to have down-played the prospect of cutting rates in February.

This set of charts explores the economic consequences of the US election outcome and  looks ahead to the Australian election which must he held no later than 17th May 2025, but which could be held in February or March.

2024-12-2 Elections and economies - US and Australia