Oxford Economics Explains Why A Trump Win Could Cost The U.S. Economy $1 Trillion

Oxford Economics recently explained why a Donald Trump victory in the U.S. presidential election could end up costing the country’s economy $1 trillion by 2021.

"Should Mr. Trump prove more successful in achieving adoption of his policies [including protectionist trade measures and the mass deportation of illegal immigrants]," the note said, "the consequences could be far-reaching – knocking 5 percent off the level of U.S. GDP relative to baseline and undermining the anticipated recovery in global growth."

This scenario contemplates some of Trump’s proposed policies would be watered down in order to get them through Congress.

"Towards the end of the five-year forecast, U.S. GDP falls to a level around 5 percent below baseline. And the anticipated recovery in global growth is significantly undermined," the report continued.

Related Link: Biggest Threat To The U.S. Economy? The Presidential Election

Breaking It Down

The most direct impact on the U.S. economy would derive from Trump’s trade policies, according to economists Jamie Thompson and Sarah Maxwell.

The Republican nominee has proposed high tariffs on imported Chinese and Mexican goods, thus creating opportunities for other emerging economies. However, Trump’s unpredictability means the tariffs could apply to a wider range of countries, and this could mean retaliation and a latter impact on U.S. exporters. Moreover, the blowback could reach the U.S. services segment, and supply chains – especially in the auto industry, where parts constantly cross borders.

Less directly, trade restrictions could result in a loss of productivity, “in part because of the effects on the quality and variety of inputs available to domestic producers,” CNBC explained.

The deportation of illegal aliens would also have a large impact on the U.S. economy, not only because sending these 10.9 million to 11.3 million people back home would cost more than $100 billion – at roughly $10,000 per head, but also because “the reduction in population size, equivalent to around 5 percent of the workforce, would also represent a material drag on U.S. labor supply."

Finally, Oxford Economics warned about the marked effect on confidence and global markets that a Trump victory could have.

“This would transmit the shock across the globe, affecting not just countries directly impacted by the policies and not just businesses with significant direct trade exposures to the U.S., Mexico and China… A weakening in confidence would most likely result in the scaling back of business investment plans, accompanied by the postponement of major household purchases.”

And, to all of this, we would have to add the impact on stock markets and government bond yields.