Former President Donald Trump’s return to the political stage has reignited global economic discussions, not least because of his ability to shape economic expectations even before taking office. His proposed policies suggest a sharp pivot from the strategies employed during President Biden’s tenure. For many countries, the ripple effects will be felt most acutely through trade, financial markets, and geopolitical relationships. While some regions may benefit, others, particularly those highly exposed to the US economy, face economic disruptions.
Trump’s potential second term, marked by a Republican sweep, guarantees a high degree of macroeconomic volatility. His proposed agenda—emphasizing deregulation, tax cuts, protectionism, and tighter immigration control—may offer short-term economic gains but risks long-term consequences. Key analyses, such as those from the Peterson Institute for International Economics, predict inflationary pressures, suppressed growth, and elevated uncertainty surrounding the Federal Reserve’s independence. Below is a closer examination of his key policies and their potential effects.
1. Higher Tariffs: A Return to Protectionism
One of Trump’s cornerstone policies during his first term was imposing tariffs, particularly on China, to promote American manufacturing. His proposed second-term tariffs are likely to amplify this approach, extending duties across broader sectors.
According to the Peterson Institute, additional tariffs could decrease US GDP by 0.9% by 2026, while inflation may rise by 1.3 percentage points by 2025. Supply chain disruptions from these measures would complicate global trade, particularly for countries reliant on the US as an export market. The stronger US dollar, buoyed by protectionist policies, could exacerbate global trade imbalances, making exports from emerging economies less competitive.
These trade frictions could directly impact Gulf Cooperation Council (GCC) nations. For example, petrochemical exports to the US, a vital revenue stream for countries like Saudi Arabia, could face heightened tariffs, reducing profit margins. On the flip side, Trump’s pro-energy agenda might bolster US-GCC partnerships in fossil fuels.
2. Mass Deportation of Immigrants: An Economic Disruption
Trump’s renewed calls for stricter immigration policies, including the deportation of illegal immigrants, carry significant economic consequences. Removing millions of undocumented workers would directly impact labour-intensive sectors like agriculture, mining, and manufacturing. These industries rely heavily on immigrant labour to maintain productivity and manage costs.
The US labour market, with an unemployment rate of just 4.1%, would struggle to replace such a vast workforce, triggering wage increases and potentially sparking a wage-price inflation spiral. Higher wages would increase production costs across the board, driving up consumer prices. According to a 2024 Economic Policy Institute report, deporting 10 million undocumented workers could lower US GDP by up to 1.6% annually while raising core inflation by 0.8%.
This disruption could create global economic ripples. For instance, industries reliant on US agricultural exports, such as the Middle East’s food security initiatives, might face costlier imports. Additionally, remittances from migrant workers, crucial for economies in Latin America and Southeast Asia, would plummet, destabilizing these regions.
3. Erosion of Federal Reserve Independence
Perhaps the most destabilizing aspect of Trump’s potential return is his open criticism of the Federal Reserve and its leadership. While Trump has yet to articulate detailed plans, past behaviour suggests an inclination to pressure the Fed to adopt politically motivated policies. For example, during his first term, he repeatedly called for lower interest rates to stimulate growth, even as inflation risks loomed.
If the Fed succumbs to political interference, it could pursue aggressive growth-oriented measures, abandoning its inflation-targeting mandate. Such actions would likely undermine investor confidence, trigger capital outflows, and destabilize the US dollar. According to a 2024 report by Moody’s Analytics, this scenario could lead to 1.5% higher inflation annually and a 30% increase in US Treasury yields, significantly raising borrowing costs worldwide.
For regions like the GCC, the implications are mixed. On the one hand, a weakened dollar and higher oil prices could benefit oil exporters. On the other, higher borrowing costs for dollar-denominated debts could strain corporate and government finances.
Global Implications: Winners and Losers
The effects of Trump’s policies would not be confined to the US. In Europe, higher tariffs and a stronger dollar could strain EU-US trade relations, weakening the European economy. Emerging markets reliant on dollar liquidity, such as Turkey and Egypt, would face financing challenges.
Conversely, the GCC could find opportunities in Trump’s pro-energy stance. His administration is likely to roll back climate-focused policies, potentially fostering closer ties with Gulf oil producers. Increased US reliance on traditional energy sources could also drive investment in GCC infrastructure projects.
A Volatile Global Economic Future
Trump 2.0 promises to bring dramatic shifts to the global economy, with protectionist policies, aggressive deregulation, and potential monetary policy interventions reshaping international markets. While some regions may benefit from closer alignment with US priorities, the broader picture points to heightened inflation, reduced global trade, and significant financial market volatility.
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In this uncertain environment, businesses and governments worldwide must prepare for a more fragmented economic landscape. For the GCC, navigating Trump’s policies will require balancing opportunities in the energy sector with risks from higher borrowing costs and potential trade restrictions. Ultimately, Trump’s return underscores the profound influence a single leader can have on global economic dynamics.
