On election day, Washington showed its best side with beautiful weather, cleanliness, and calmness despite the heavy security presence. However, the majority of Washingtonians voted for the Democrats, leading to disappointment for many.
American elections primarily focus on domestic issues, and this time it was even more evident. Both Republican and Democratic voters seem less interested in global issues. A more withdrawn USA is something we must come to terms with, and with Donald Trump as president, the impact is expected to be significant in several ways.
It is clear that the economy has been a focal point for voters, but also that a significant majority of the American people feel worse off under the Biden administration. Many attribute this to the policies implemented rather than the global conditions. As an economist, this may seem peculiar as the American economy has weathered challenges better than many other countries and surprisingly well.
### Risk of Trade War
It is also evident that both Trump and many voters have a short-term focus. Time and time again, it is argued that tariffs and barriers are beneficial for the American economy and jobs. There is little discussion here about how tariffs, like those experienced by the British post-Brexit, increase costs for households and diminish competitiveness.
Trump seems convinced of the virtues of tariffs, claiming that it is the most beautiful word in the dictionary. The question is how far he is willing to go. There is strong evidence that tariffs will significantly increase against China, likely prompting China to respond in kind. This has raised concerns about a potential trade war. Regardless of how far it escalates, barriers are likely to increase at the expense of free trade.
### Investments in Green Transition May Persist
For a small open economy like Sweden, this is not ideal. Trump has hinted at broad tariffs on everything entering the USA. However, this policy immediately impacts American households that purchase goods from other countries and eventually affects American companies dependent on both input goods and global sales.
There is an opportunity for influential businessmen to persuade Trump to proceed more cautiously. Even though the Republican Party is now more of a working-class party, Trump still listens to these men.
Swedish companies need to prepare for it becoming harder and more expensive to sell to the USA. It is also clear that the focus on climate is diminishing, although Biden’s program for green transition, the Inflation Redaction Act, may persist as it benefits companies led by Republican voters.
Annika Winsth is the Chief Economist at Nordea.