Editor’s note: This story has been updated.
The London-based Economist Intelligence Unit, a global forecasting service, ranks Donald Trump winning the U.S. presidential election as one of the top 10 risks facing the world economy.
“The businessman and political novice, Donald Trump, has built a strong lead in the Republican Party primary, and looks the firm favorite to be the party’s candidate in the U.S. presidential election in November,” the EIU writes in its Global Risk Assessment, which was published online yesterday.
The report cites the New York City business mogul and reality television star’s hostility toward free-trade agreements and China, as well has his “exceptionally right-wing stance on the Middle East and jihadi terrorism, including, among other things, advocating the killing of families of terrorists and launching a land incursion into Syria to wipe out” the Islamic State group.
“In the event of a Trump victory, his hostile attitude to free trade, and alienation of Mexico and China in particular, could escalate rapidly into a trade war — and at the least scupper the Trans-Pacific Partnership between the U.S. and 11 other American and Asian states signed in February 2016. His militaristic tendencies towards the Middle East (and ban on all Muslim travel to the U.S.) would be a potent recruitment tool for jihadi groups, increasing their threat both within the region and beyond,” the EIU said.
The report ranks a Trump victory in the election as a “moderate probability,” which could become more certain if there is a terrorist attack on U.S. soil or an economic downturn.
Robert Hartwig, an economist and president of the New York City-based Insurance Information Institute, says the EIU characterization of the effect of a Trump presidency is a little too premature and speculative.
“We have to separate election-year bluster from what will actually happen in terms of policy pursued by a new president. The president always works within confines of Congress,” he said.
“The reality is that the Republican and Democratic parties have clearly moved away from the more-pro-trade stance that they’ve had in previous presidential election cycles. Even Hillary Clinton has moved away from her support” of the Trans-Pacific Partnership, a trade agreement signed earlier this year among 12 Pacific Rim countries, including the United States.
A possible Trump election win ranks at No. 6 on the EIU top 10 list, tied with the rising threat of jihadi terrorism destabilizing the global economy, coming in above the United Kingdom voting to leave the European Union, an armed clash in the South China Sea, and a collapse in oil sector investment leading to an oil-price shock.
Here are the five threats ranking higher than a Trump presidential election win:
1. China experiences a hard economic landing
“If China’s economy slows by more than we currently expect, it will further feed the ongoing global commodity price slump (especially in oil and, in particular, metals), with a hugely detrimental impact on those Latin American, Middle Eastern and Sub-Saharan African states that had benefited from the earlier Chinese-driven boom in commodity prices,” the EIU writes. “In addition, given the growing dependence of Western manufacturers and retailers on demand in China and other emerging markets, a prolonged deceleration in growth there would have a severe knock-on effect across the EU and the U.S. — far more than would have been the case in earlier decades.”
2. (Tie) A new cold war prompted by Russia’s interventions in Ukraine and Syria
According to the report, “the stepped up deployment of NATO forces to Eastern Europe (including the Baltics), as well as Russia’s provocative tendency to fly its military aircraft over western European airspace, raise the risk of a direct confrontation. With this in mind, Western countries will begin to reverse their defense cuts of recent years, complicating efforts to rein in high fiscal deficits, and the continued uptick in tensions could also see a return of the political risk premium in oil prices.”
2. (Tie) An emerging markets corporate debt crisis
“Any rolling emerging-market debt crisis would cause considerable panic across the global capital markets, and may require governments in several economies to step in to shield their banks from the fallout — risking a repeat of the banking crises witnessed in Europe at the start of this decade,” the report says.
4. (Tie) A fracturing of the European Union
“In the event that the EU began to fracture and land borders reimposed, trade flows and economic co-operation would be hindered, harming growth in the world’s largest single trading bloc — and notably in trade-reliant Germany, which shares land borders with 10 fellow Schengen members — and leaving the fragile euro zone states more vulnerable in the event of another economic downturn,” the EIU says.
4. (Tie) A break-up of the euro zone after an exit from it by Greece
Countries leaving the euro zone while “under duress would suffer large devaluations and be unable to service euro-denominated debts. In turn, banks would suffer huge losses in their sovereign bond portfolios, resulting in major disruption to the global financial system and plunging the world economy into recession,” the report says.