The Sword of Damocles


It’s Friday, January 20, 2017, Washington D.C., shortly after 12:00 noon, local time. Donald Trump stands at the western front of the Capitol building, a few moments after taking the oath of office that made him the 45th president of the United States. Following the protocol of the ceremony, he is now delivering his inaugural address. One central aspect of his election campaign was what he presented as the need for the USA to focus unconditionally on its own particular interests. “[...] from this day forward: a new vision will govern our land, from this day forward, it’s going to be only America first. America first.” America first: Donald Trump made the motto of his first presidency clear from the outset, in no uncertain terms.

On Monday, January 20, 2025, we may well witness the same scene again. Same place, same time. The winner of this year’s US presidential elections will be sworn in as president. Joe Biden, the incumbent president, and Donald Trump are neck and neck in the latest polls for the November 5 elections. Observers outside the USA are increasingly asking themselves how Donald Trump’s possible return to the White House would affect global politics and the global economy.

Well-known strategy: America first

As we all know, attempts at predicting the future are often hardly more than looking into a crystal ball – at least if we have no previous experience to go on. But with Donald Trump, it is a different story. His first presidency gives us a pretty good taste of what would be in store during a second term. Donald Trump sees himself as the guardian of US supremacy. “America first” means asserting the US’ claim to being the world’s dominant economic power and to secure this position. The one systemic rival and serious challenger to the US is China, which is threatening US supremacy, in particular in the Pacific region. Without an economic confrontation, China is set to become the world’s largest economy, if nothing else simply because it has more than four times the population of the US. If Donald Trump wins a second term of office, a more heated economic confrontation with China will be inevitable. The two countries would intensify their efforts to decouple their economies from each other. The USA would try to curb the transfer of technology to China even more, and the geopolitical tensions surrounding Taiwan would also gain momentum, at least as far as the rhetoric is concerned.

This scenario would not present a particularly positive outlook for the global economy. Whenever there is uncertainty and conflict, economic growth suffers. Under a Trump presidency, the prospects for international cooperation to tackle global challenges will become even more difficult than they are now. The incumbent president, Joe Biden, is already pursuing anti-China economic policies, using industrial policy measures such as the Inflation Reduction Act and trade policy instruments such as export restrictions on critical technologies. In contrast to Trump, however, Biden sees the EU as an ally and cooperation partner. For Donald Trump, Europe is weak and too friendly towards China. In a potential second term, President Trump would show no consideration for European interests. A first taste: During his electoral campaign, he has proposed the introduction of an additional ten percent across-the-board tariff on all US imports. This “America first” approach would come at the expense of the USA’s European trading partners and US consumers.

[Translate to English:] Harald Oberhofer

© Alexander Müller

Harald Oberhofer is professor of empirical economics at WU Vienna’s Department of Economics and an economist at the Austrian Institute of Economic Research (WIFO). He also heads the FIW (Research Centre International Economics), a collaboration between four Austrian universities and two research institutes focusing on applied economics. His research interests include questions related to the economics of international trade and trade policy. He regularly shares his expertise in commentaries published by Austrian media outlets.

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