With former President Donald Trump’s historic reelection victory, financial experts warn that inflation is likely to rise in the United States and globally if Trump implements his campaign pledges, which include aggressive tax cuts, strict immigration policies, and high tariffs on imported goods. CNN projected Trump’s victory on Wednesday, securing him a second term in office alongside a Republican majority in the Senate, positioning him to enact a potentially transformative economic agenda.

U.S. stock markets surged following Trump’s win, and the dollar strengthened against major currencies as traders braced for increased inflation and fewer interest rate cuts from the Federal Reserve. Matthew Ryan, head of market strategy at Ebury, noted that a stronger dollar reflects investor expectations that Trump’s policies—particularly on tariffs and immigration—will boost inflation and potentially lead to elevated interest rates.

“Investors are bracing for tariffs… which will push up the price of imported goods for American shoppers,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown. Trump’s promise of mass deportations could also raise wage costs for U.S. companies by limiting the labor pool, she added.

Higher Tariffs on Imports

During his campaign, Trump proposed raising tariffs to 10-20% on all imported goods, a drastic increase from the current 2% average, with a 60% tariff specifically on Chinese imports. He has also suggested tariffs as high as 200% on cars manufactured in Mexico or by U.S. companies that relocate production there. According to analysts, these tariffs would act as a tax on imports, increasing costs for consumers and businesses reliant on imported materials.

Economists warn that higher tariffs could disrupt the Federal Reserve’s interest rate strategy. Nomura analysts indicated that due to anticipated inflation from tariffs, they now expect only one rate cut in 2025, with policy likely remaining on hold until inflation subsides.

Impact on Global Markets and Trade

The effects of Trump’s tariffs could reverberate beyond U.S. borders. If trading partners impose retaliatory tariffs on American exports, global inflation could rise, potentially stunting world trade and economic growth. “A material increase in global inflation would follow, while the ensuing hit to world trade would negatively impact growth,” noted Investec chief economist Philip Shaw and economist Ellie Henderson.

A stronger dollar could also impact global inflation, particularly for countries that rely on commodities priced in U.S. dollars. As the dollar gains strength, these countries may face higher costs for essential goods, which companies would either have to absorb or pass on to consumers. This effect could force adjustments in international markets, with some countries like China potentially offloading excess goods to other nations with lower tariffs, possibly dampening inflation in those areas.

Risks for Key Trading Partners

Economies heavily reliant on U.S. exports, such as Canada and Mexico, may feel the direct impact of Trump’s tariffs. BMI, a market research firm under Fitch Solutions, warned that Mexico, Canada, and other nations with trade surpluses, including China, Japan, Germany, and South Korea, could face pressure to increase imports of U.S. goods. A 60% tariff on Chinese goods alone could cut China’s economic growth by up to 0.8 percentage points over the next two years, according to BMI.

German exporters could also experience significant setbacks if Trump enacts a 20% tariff on all trading partners. The Ifo Institute for Economic Research in Munich warned that German exports to the U.S.—its largest market outside the EU—could drop by around 15%, potentially posing a severe economic challenge for both Germany and the EU.

As Trump prepares to implement his economic agenda, economists expect a turbulent period for global markets, marked by inflationary pressures, potential trade conflicts, and shifting alliances.