Velasco of LSE: Trump’s victory “Moves us toward a more protectionist world led by the U.S.”

The U.S. election results point to an uncertain future for the foreign trade of Asia-Pacific Economic Cooperation (APEC) economies, following President-elect Donald Trump’s announcement to raise tariffs on China, potentially sparking a trade war.

This issue was addressed by Professor Andrés Velasco, Dean of the School of Public Policy at the London School of Economics (LSE), during his lecture on geopolitics and electoral results at the APEC CEO Summit 2024.

Velasco also described two trends in Trump’s administration. The first is ideological, aiming to place the United States above any other country, while the second centers on a U.S. foreign policy based on agreements aligned with Trump’s own agenda. “Both scenarios move us toward a more protectionist world led by the United States, which will not benefit East Asia or Latin America,” he stated.

But how might Latin America be affected? Under Trump’s proposed economic model, U.S. inflation would rise as higher tariffs drive up the cost of goods. This, along with a fiscal deficit from increased spending and tax cuts, could prompt the Federal Reserve to raise interest rates or at least maintain them, making the U.S. a more attractive destination for capital flows.

Meanwhile, APEC economies would likely see their currencies weaken against a stronger dollar, affecting local inflation, raising export costs, and increasing inflation risks within these countries.

“If the world splits into two blocs, one led by the United States and the other by China, we may find ourselves in a position where we have to choose a side. And that’s not a position any of us wants to be in,” the macroeconomist warned.

Velasco also cautioned that there is a risk of political leaders emulating Trump’s model, not only economically but politically as well.