WASHINGTON — At the recent International Monetary Fund (IMF) and World Bank annual meetings, discussions centered on low growth, high debt, and escalating conflicts, but much of the focus among finance leaders was on the potential ramifications of Donald Trumps return to power in the upcoming U.S. presidential election. With Trump gaining ground in the polls, erasing the early lead of his Democratic opponent, Vice President Kamala Harris, his potential presidency was a recurring topic among finance officials, central bankers, and civil society representatives at the Washington meetings.

Concerns were raised about Trumps ability to disrupt the global financial system through significant tariff hikes, increased national debt, and a rollback of climate change initiatives in favor of expanding fossil fuel production. Bank of Japan Governor Kazuo Ueda remarked on the prevailing uncertainty regarding the next president and their policies, while another unnamed central banker bluntly expressed the feeling that it’s starting to feel like Trump is going to win. Trump has promised to implement a 10% tariff on imports from all countries and a 60% tariff on Chinese imports, which could disrupt global supply chains and provoke retaliatory measures, raising costs worldwide. German Finance Minister Christian Lindner warned that a trade war between the U.S. and EU would leave no winners.

Additionally, Trump has proposed various tax breaks that could add at least $7.5 trillion to the U.S. debt over the next decade, on top of the estimated $22 trillion increase already predicted by the Congressional Budget Office through 2034. In contrast, a victory for Harris is seen as a continuation of President Joe Biden’s efforts toward multilateral cooperation in areas like climate action, corporate taxation, debt relief, and development bank reforms, with her fiscal plans likely resulting in less debt than Trump’s.

Biden maintained Trump’s tariffs on steel, aluminum, and certain Chinese goods, which were significantly raised on new industries such as electric vehicles and solar products. Harris has endorsed this targeted approach and criticized Trump’s broader tariff plans as a tax burden on American families.

Market Reactions to Trumps Prospects : Financial markets are witnessing a resurgence of Trump trades, with investors favoring assets such as stocks, bitcoin, and the Mexican peso in anticipation of a Trump victory. The dollar has seen its largest monthly gain in over two and a half years, rising 3.6% in October, with Standard Chartered analyst Steve Englander attributing 60% of this increase to Trumps improved polling numbers. Brazil’s central bank chief, Roberto Campos Neto, noted that the pro-Trump market sentiment is already contributing to inflationary pressures on long-term interest rate futures in dollar-sensitive economies, suggesting both Trump’s and Harris’ fiscal plans could lead to inflation.

The IMF has asserted that the battle against global inflation is largely under control, with the U.S. economy compensating for weaknesses in China and Europe. IMF Managing Director Kristalina Georgieva urged policymakers to begin addressing the large amounts of debt incurred during the COVID-19 pandemic to avoid a future of low growth and increasing dissatisfaction among populations.

When asked about how the possibility of a Trump return influenced the meetings and IMF policy advice, Georgieva emphasized that the focus was on tackling current economic challenges. The sentiment among members is that elections are for the American people, she said, stressing the importance of identifying challenges and how the IMF can address them constructively.

Emerging Concerns: While the Federal Reserves significant rate cut would typically bode well for emerging-market growth, fears of increased U.S. deficits under a potential Trump administration have raised alarm bells. Turkish Finance Minister Mehmet Simsek warned that larger deficits would lead to growing debt and potentially higher long-term interest rates, which could adversely affect emerging markets. Concerns about a retaliatory global trade war hampering the easing of inflation were also prevalent. South Africas central bank governor, Lesetja Kganyago, cautioned that if one nation imposes tariffs, others will likely respond, which could hinder the disinflation process central banks are trying to achieve.

Saudi Arabian Finance Minister Mohammed Al-Jadaan, chair of the IMFs steering committee, highlighted the importance of maintaining dialogue with both Republican and Democratic administrations, including Trump’s. This sentiment was echoed by other attendees, with Angolan Finance Minister Vera Daves de Sousa noting the importance of turning challenges into opportunities for growth and adaptation.

Disclaimer: This image is taken from Reuters.