Following Donald Trump’s unexpected victory in the 2016 presidential election, there was uncertainty among investors about his economic agenda. In my analysis during his initial year in office, I focused on assessing the potential impacts of his policies on financial markets.

One key discovery was that Trump’s notable legislation, the Tax Cut and Jobs Act of 2017, was anticipated to have a positive effect. This was mainly due to the reduction of the corporate tax rate from 35 percent to 21 percent, aligning it with global standards and reducing outsourcing incentives.

In contrast, I contended that escalating tariffs on imports from countries like China might trigger retaliatory measures, causing increased market volatility.

The subsequent outcome largely confirmed these findings. The stock market saw steady growth until the beginning of a trade dispute with China in 2018, resulting in a significant drop of 15 percent. Only in mid-2019, when tensions eased, did the market return to its previous levels.

While Trump’s presidency witnessed low inflation and unemployment rates, some economists expressed concerns about the extreme nature of his policies, predicting potential negative impacts on the national and global economies. The Wall Street Journal’s survey of economists projected increases in inflation, interest rates, and budget deficits under Trump’s policies.

Trump’s tax propositions aimed to further slash corporate tax rates, shield Social Security benefits from taxes, and establish higher tariffs on imports. Analysts warned that the combination of tax cuts and tariff hikes could significantly escalate the federal budget deficit over the next ten years.

Critics like The Wall Street Journal Editorial Board argued that Trump’s tax plans were skewed, undermining fair taxation principles by narrowing the tax base. They cautioned that this approach might necessitate higher tax rates to mitigate budget deficit consequences.

While the financial markets remained unfazed by these proposals due to the pending election, investors were cautious. The prospects of impending fiscal policies being adopted depended significantly on the election outcome, with Republicans possibly focusing on extending existing policies and discarding new proposals.

Compared to tax policies, Trump’s longstanding inclination towards imposing tariffs traced back to the 1980s. Trump’s unwavering stance on tariffs, particularly concerning China, was reinforced by Robert Lighthizer, strengthening his views on trade relations.

Trump defended his tariff strategy, emphasizing protectionism in favor of domestic companies. If reelected, he could swiftly implement new tariffs with substantial authority delegated by Congress.

The uncertainty prevailed concerning potential legal impediments in enacting these tariffs, especially on imports from other trading partners. If faced with opposition, the process might be prolonged, causing trepidation among investors.

Notable economic experts expressed concerns about the adverse outcomes of Trump’s tariff policies, stating that previous tariffs were detrimental to consumers, export competitiveness, and did not revitalize the manufacturing sector. The forecasted impact of proposed tariffs on the U.S. imports was projected to be significantly detrimental.

In the worst-case scenario, escalated tariffs might trigger retaliatory measures from China, exacerbating the trade conflict. The ripple effects could involve heightened market volatility, surpassing that experienced during the initial U.S.-China trade tensions.

In conclusion, Trump’s proposed tariffs represent an extreme measure with profound implications for the global economy. The extensive scope, likelihood of implementation, and potential retaliatory actions elevate the risks significantly.

Nicholas Sargen, Ph.D., serves as an economic consultant and is associated with the University of Virginia’s Darden School of Business. Notably, he has authored several books, including “Investing in the Trump Era: How Economic Policies Impact Financial Markets.”