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What a Donald Trump presidency would do to the global economy

Donald Trump speaks during a news conference in Turnberry, Scotland on June 24. REUTERS/Clodagh Kilcoyne

After two years under Trump's policies, U.S. economic growth would slow to about 0.3 percent annually, the worst pace since the recession ended, according to British research firm Oxford Economics.

If the Republican presidential nominee was able to fully implement his plans to impose tariffs on goods from China and Mexico and force large numbers of undocumented immigrants to leave the United States, the U.S. economy would begin to stall by 2019, the research firm determined. Economic expansion would also slow globally as weakness in China and the United States spread to their trading partners.

Globally, the rate of expansion would decline to about 2.2 percent annually, compared to a forecast of 2.9 percent if Trump's policies were not implemented. Without the policies, the U.S. economy would be $430 billion larger after five years, according to the research.

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More likely, according to the firm, Congress would force Trump to compromise on his agenda, in which case the effect on the economy would be contained. The U.S. rate would decline to under 2 percent a year, and there would be only a minimal effect worldwide.

"The economic and market impact is most likely to be relatively muted. But, should Mr. Trump prove more successful in achieving adoption of his policies, the consequences could be far-reaching," the report authors wrote.

Broadly speaking, economists have been critical of Trump's proposals, which depart from the standard approach that Republican politicians have taken in the past.

Typically, GOP candidates have argued that the best policies for the economy are ones that make goods and labor cheaper -- usually by reducing taxes and eliminating restrictions on business, especially international trade. Yet Trump's policies would do the opposite. Tariffs would make imported goods more expensive and could also increase costs for U.S. exporters if foreign countries retaliate. Deporting large numbers of immigrants would increase the cost of hiring workers for U.S. firms.

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Besides tariffs and deportations, Trump's other major economic proposal is a massive reduction in taxes. Reducing taxes can stimulate the economy but also forces the government to either borrow more or spend less. If Congress reduces spending while reducing taxes, the benefits will be limited, the researchers note. Much of the economy relies on public spending through programs that put money in private citizens' pockets, such as Social Security and military contracting.

While grim, the forecast is in fact optimistic compared with another that Moody's issued earlier this year. That forecast -- authored by economist Mark Zandi, who has advised politicians in both parties -- predicted that Trump's policies could in fact create a recession in the United States. In other words, economic expansion would not just decelerate as Oxford Economics forecast, but would actually begin to reverse.

One major difference between the two forecasts appears to be divergent predictions about how the Federal Reserve would respond to Trump's economic policies.

Imposing tariffs and reducing the number of available workers would increase businesses' costs and force them to raise prices for goods and services. Zandi and his colleagues at Moody's predicted that the U.S. central banks would respond to the inevitable inflation by increasing interest rates. Steeper rates would make it more difficult for businesses and households to borrow money, giving them less to spend on goods and services and putting a check on the increase in prices.

By contrast, Oxford Economics predicted that the Federal Reserve would take a long view, looking past an immediate increase in prices to the negative economics effects of Trump's policies over the long term. To keep the economy moving, the Federal Reserve would maintain interest rates close to zero, Oxford forecast, helping to mitigate the ramifications of Trump's policies.

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