Seldom has a year started with so much upheaval in prospect. In a little under three weeks, Donald Trump will be in the White House and, if he holds to his stated intentions, he will start tearing up US trade agreements on his first day.

Sometime this year Britain will give formal notice of its intention to leave the European Union, triggering negotiations with erstwhile trade partners who could easily demand punitive tariffs and other restrictions on access for British travellers, goods and financial services, not just to punish Britain but, more urgently, to discourage voters in France and other EU nations from going down the same path.

Trump is also determined to declare China a currency manipulator, which would permit him to impose retaliatory trade restrictions. If he does, China will probably respond in kind. The prospect of a trade war between the world's two largest economies, one its largest factory, the other its leading investor, innovator and consumer - not to mention the basis of the world's most traded currency - makes it difficult to expect a happy new year.

Of course, Trump might not carry out his stated intentions. Already he has backtracked on aspects of "Obamacare" he demonised in his election campaign, and the "wall" against Mexico has become a fence. The US stockmarket and its currency have rebounded since the election, looking forward to an economic stimulus from the corporate tax cuts he has promised and the spending he plans on infrastructure and a military build-up.


The markets seem unconcerned about the implications of those plans for interest rates.

A stimulus on the scale Trump is talking about will rekindle inflation unless it is countered with higher interest rates. The US Federal Reserve board held off further interest rate rises this year until it saw the result of the presidential election. Then it raised the base interest rate and indicated it could make three more increases during 2017. If it does, it is hard to see that central banks such as New Zealand's can hold to its stated intention to keep the official cash rate as low as it is through this year.

It seems very likely that 2017 will mark the end of an era of low interest rates worldwide. If so, it could be a nervous year for households servicing high mortgages on property investments made when house prices were rising, seemingly forever.

Traders in stocks and currencies are no doubt correct that Trump's stimulus could be felt before interest rates can have an effect, and long before the US and world economies start to suffer from his trade policies. But in the long run his protectionism stands to do most damage. National economies could become less competitive, less innovative. Existing jobs would be safer but fewer new jobs would be generated. Immigration would have to be severely restricted. Prices and incomes would rise, real incomes (living standards) would decline.

This year could see global economic liberalisation go into reverse unless those vaunted checks and balances in US government really work.