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With Donald Trump elected president and a likely Republican majority in Congress, much of the proposals presented during his campaign have a high chance of coming to fruition, which is already beginning to impact global markets.
How does this directly affect you?
To protect your assets, it is essential to understand the effects that Trump’s policies can bring to the global economy.
Two important points should be on the radar:
- Accelerated devaluation of foreign currencies against the Dollar – Not by chance yesterday, with Trump’s victory already practically certain, the dollar rose in relation to several currencies in the world.
- Increase in American interest rates – If you are thinking of buying a property with financing in the US, don’t wait too long! Forecasts indicate a resumption of high interest rates in the US, which may make credit more expensive.
And why is this happening?
This article explores the reasons why Trump’s victory generates expectations of high dollar at the global level and increase in American interest rates, offering strategies for you to protect yourself.
What are Trump’s Proposals?
Two proposals widely defended by Trump and that will directly affect the world are:
- Protectionist measures: Trump wants to increase the import tax in the US;
- Tax cut: It is estimated that, in the next 4 years, the US will lose in revenue something that could vary between 8 and 16 trillion dollars.
Inflationary effect in the USA
One of the issues that stands out in Trump’s government plan is the tightening of trade relations with China. A concrete measure he proposed is the increase in import tariffs. Specifically, he suggests a 60% tax on Chinese products and a 20% tax rate on imports from other countries.
These tariffs are intended to make imported products more expensive, encouraging domestic production. However, the increase in import taxes may have adverse effects. One of them is the increase in inflation!
Why can inflation rise in the US? This occurs for several reasons. Among them:
- Direct effect on the increase in the prices of imported products, since the highest tariff is passed on via price increase to the final consumer;
- Many national products depend on imported components, raw materials or inputs. If these materials become more expensive due to the increase in import tax, the cost of production increases. These additional costs are usually passed on to consumers in the form of higher prices, raising inflation;
- With more expensive imported products, the demand for domestically manufactured products tends to increase. This increase in demand, without a corresponding increase in supply, generates pressure on domestic prices, raising the cost of local products.
- The increase in import tax can also reduce competition in the domestic market, as imported products become less accessible. With less competition, local companies may have less incentive to improve their efficiency and reduce their prices.
Increase in the American interest rate
To contain inflation, one of the most common macroeconomic strategies is the increase in interest rates. Yesterday, with Trump’s victory almost guaranteed, interest rates on U.S. Treasury bonds rose, reflecting the impact of expectations on his management.
Higher interest rates in the US attract foreign capital, making emerging markets less attractive in comparison.
Tax Reduction and Increase in Public Deficit
Trump also proposed a significant tax reduction for both individuals and companies. Estimates vary, but cuts could represent $8 to 16 trillion over his term. This measure aims to stimulate the economy, encouraging investments and expanding consumption, but also generates concerns about the public deficit.
Increase in American Public Debt
With a significant reduction in taxes, the American government may face difficulties in maintaining the fiscal balance without proportional cuts in expenses. Without a solid plan to reduce public spending, the US may see its deficit increase, requiring the issuance of more Treasury bonds to finance its accounts. This movement implies an increase in American public debt, which also justifies the increase in interest rates on Treasury bonds.
Take advantage of the still low interest rates to buy your property in the USA
Another important point when considering buying a property now is the current interest rate in the US. Although previous expectations pointed to a reduction, the scenario has reversed, and the market now predicts a rise in American interest rates. This means that the cost of real estate financing tends to increase in the near future. Taking advantage of current rates is a valuable opportunity for those who want to finance a property, as they are still lower than they will probably be in the coming months.
About AMG International Realty
AMG International Realty is a global real estate company specialized in Florida and aimed at the foreign public. If you want to know more about the process of buying a property in Florida and also about how to finance the purchase taking advantage of the low American interest rates, contact me right now and talk to me on WhatsApp: +1 305 761 2655 (Heloisa Arazi).
