Will the second Trump boom go bust?

What could Donald Trump's victory in the US presidential election mean for the American and global economies?

- Kenneth Rogoff

In a December 2016 commentary titled The Trump Boom?, I argued that despite concerns about Trump's personality and economic policies, it was entirely plausible that the United States could experience robust GDP growth during his presidency—albeit with a risk of higher inflation.

For the "crime" of trying to be objective and suggesting that the US economy might perform well under Trump, I was condemned by fellow economists and commentators, especially progressives. Many, including Nobel laureate and New York Times columnist Paul Krugman, instead predicted a global recession and an imminent stock-market crash.

Although I would not go so far as to predict a stock-market collapse, my outlook for Trump's second presidency is decidedly less optimistic. As in 2016, Trump is inheriting a strong economy, which he nonetheless insists on mischaracterizing as "terrible". But he faces a more challenging economic landscape than he did in his first term, regardless of his domestic policies.

For starters, the world is a more volatile place than it was eight years ago. Russia's 2022 invasion of Ukraine has been far more destabilizing than its 2014 annexation of Crimea, and the Middle East—which became more stable under Trump, thanks to the Abraham Accords—is now embroiled in an escalating regional conflict. Meanwhile, with China adopting an increasingly aggressive stance towards its neighbours, the risk of a confrontation in the South China Sea over the next few years is uncomfortably high.

During the 2016 campaign, both Trump and Senator Bernie Sanders, who lost the Democratic nomination that year to Hillary Clinton, railed against the North American Free Trade Agreement (NAFTA) and advocated import tariffs. As president, Trump ended up imposing relatively modest tariffs, though still high enough to cost US consumers billions of dollars in higher prices.