Anxiety about the economic impact of a second Trump administration is reaching a fever pitch overseas a week before Election Day.
Foreign officials and economists worry that a Donald Trump victory could usher in a worldwide cascade of new trade barriers and an extended stretch of higher interest rates—a potentially punishing cocktail for weaker economies abroad.
Trade advocates have been concerned about Trump’s return to the White House since he won the Republican nomination earlier this year. Their distress has deepened as the former president doubles down on threats of high tariffs, and as some polls paint Trump the favorite with early voting now underway.
“You can feel a lot of nervousness, and it’s very different from in 2016,” said Gilles Moec, chief economist at AXA Group, a large French insurer. “This time-since we learned from his first term that Trump actually tried to implement quite a lot of what he had been talking about-people take it a lot more seriously.”
The unease reflects how the long reach of U.S. trade policy may carry greater stakes for foreign economies than within America’s borders. At home, modest unemployment, steady growth and a roaring stock market suggest the domestic economy might be able to withstand a trade war or elevated interest rates without deep pain.
But the outlook abroad is less buoyant, leaving foreign economies more vulnerable. Last week the International Monetary Fund projected U.S. output will grow by 2.2% next year, compared with 1.5% growth in the U.K., 1.2% in the euro area and 1.1% in Japan.
For economic officials in Europe, Trump’s pledge of new tariffs, with especially bruising duties on U.S. imports from China, is the chief concern. Trump has outlined a shifting array of tariffs during his campaign, often including a 60% tariff on imports from China and broad tariffs of varying sizes on goods from elsewhere.
At the IMF’s annual meeting in Washington, D.C. last week, Christine Lagarde, head of the European Central Bank, said that new trade barriers could renew worldwide inflation pressures and could reduce global GDP by as much as 9% in a severe case.
“It is therefore crucial that legitimate concerns about security and supply chain resilience do not lead to a spiral of protectionism,” Lagarde said.
A breakdown in U.S.-China trade would be even more damaging for other countries than modest U.S. tariffs Trump may apply globally, economists say. They worry that Chinese companies would redirect a portion of their $420 billion of annual exports to the U.S. to other markets in Europe and elsewhere, igniting a broader round of global trade conflict.
“When the U.S. puts these anti-dumping trade policies or tariffs on China, China finds somewhere else to dump their goods, and Europe is part of that,” said Satyam Panday, an economist at S&P Global Ratings.
U.S.-China trade tensions have flared since the first Trump administration levied new tariffs on China in the late 2010s, many of which President Biden has left in place. Those duties’ limited scale has curtailed their global impact, but the bigger tariffs Trump is now proposing pose a graver threat, said Arvind Subramanian, a senior fellow at the Peterson Institute for International Economics.
“If the aim of the United States and Trump and others is not just to contain China but to smash the Chinese supply chain as it were-which hasn’t happened so far-then we’re in for much more dire consequences,” Subramanian said at a Peterson conference last week.
Some foreign economists and investors find the risk of a long stretch of higher U.S. interest rates equally concerning. They worry that not just new tariffs but also bigger American deficits could drive up U.S. inflation pressures, leading the Federal Reserve to extend its stretch of tighter monetary policy.
Analysts project that Trump’s and Democratic candidate Kamala Harris’s spending proposals would both swell the federal debt, with Trump’s heaping on a greater burden. The nonpartisan Committee for a Responsible Budget estimates that Harris’s plans could add $3.5 trillion to the U.S. debt over the next decade, and that Trump’s could add $7.5 trillion.
Bigger deficits and higher rates in the U.S. could push up global borrowing costs and slash the valuations that investors apply to international stocks, said Jorry Noeddekaer, an emerging-markets investor at U.K.-based Polar Capital.
“If Trump really goes out there with big spending, you can see the U.S. 10-year yield testing 5%, and that will go into every single valuation model in financial markets around the world,” Noeddekaer said.
“I have not come across one international investor that has anything good to say about a Trump outcome,” he added.
The global economy has so far avoided a recession even as central banks the world over raised interest rates to cool down inflation. But anxiety about the U.S. election and the wars in Ukraine and the Middle East cast a jittery mood last week over the IMF’s annual meeting, a conclave of international economists who largely support free trade reflexively.
Laura Alfaro, an economist at Harvard Business School, told IMF delegates that her research shows it has become very difficult to convince everyday Americans of free trade’s benefits.
“I see with angst what is going on,” Alfaro, a former economic minister of Costa Rica, said.
Write to Matt Grossman at matt.grossman@wsj.com