2024-07-21 18:10:45
Donald Trump would be a dominant president in terms of trade policy. The financial markets react nervously when he flirts with the defense.
The markets are expecting a second term for Donald Trump.
With Joe Biden withdrawing from the presidential election, Donald Trump’s second term is up for grabs.
It’s been a great weekend for Trump: he’s gotten a lot of attention in the last few days, especially because of the assassination attempt. He used the spotlight to share his vision for economic policy with the world. On Wednesday, the Bloomberg news agency published a long interview with the presidential candidate. Trump then reaffirmed his principles at the Republican National Convention, where he was named as the official nominee.
To stimulate the American economy, Trump wants low taxes and deregulation. The oil industry, for example, is likely to benefit from the oil industry: climate legislation is to be scaled back and boosted by the extraction of raw materials. “Drill, baby, drill,” Trump shouted to a cheering crowd at the party convention.
But his trade policy is far more important to the fate of international financial markets. The slogan is again “America First”: Trump’s understanding of trade follows the logic that more exports are good, but more imports are bad for America. During the election campaign, he proposed a 10 percent tariff for all imports, and for goods from China it should be as much as 60 percent. By choosing JD Vance as his running mate, a staunch isolationist, Trump sent a clear signal that he was more protected.
In the interview with Bloomberg, the presidential candidate openly admitted that there were many negotiating tactics behind the demand for greater protectionism: he wanted to use high tariffs to win concessions for American industry.
Trump rebukes, and the markets follow
In Trump’s world, other states must buy America’s favor. This also applies to Taiwan: The island state has long benefited from the unconditional support of the US and has stolen the chip industry from them, Trump said. If Taiwan still wants American protection, the country will have to pay for it.
The statement ended Taiwan’s financial markets this week, with the Taiwan dollar falling to an eight-year low against the US dollar on Friday. Taiwan’s stock index lost about 4 percent on a weekly basis.
This was mainly due to the largest company in the country: TSMC shares, the world market leader in the production of semiconductors, lost more than 7 percent of their value from Wednesday to Thursday as a result of Trump’s interview. Even Thursday’s good quarterly figures did not obliterate the geopolitical threat.
The chip industry has had a difficult week around the world. Regardless of Trump’s threatening behavior toward Taiwan, Bloomberg reported on Wednesday about an internal working paper that the Biden administration was considering stricter regulations on the export of microchips to China. ASML shares fell 11 percent on the same day, Nvidia by 6 percent.
US stocks rise, uncertain future for bonds
American protectionism is likely to continue to be a concern for investors in the future, especially if Donald Trump wins the election. Because: Trump is considered a clever tactician who uses targeted statements to pressure foreign states. Stock markets in Europe and Asia – regions of the world that have come under Trump’s scrutiny in the past – are likely to face uncertain times if he becomes president again.
In the case of American stocks, however, the second term of office for Donald Trump would have a short-term positive effect due to the stimulus packages announced, says UBS strategist Kiran Ganesh. This is particularly true of sectors that are likely to benefit from deregulation. Ganesh cites the financial sector as an example: He believes that the positive effect has not yet been priced in the current market prices of American financial securities.
Samy Chaar, chief economist at Lombard Odier, also expects Trump to deliver a nominal growth spurt once he takes office. He has a generally positive view of American company stocks.
For bonds, the potential impact of another Donald Trump presidency is less clear. Trump himself recently claimed that low interest rates were at the heart of his economic program. It is not clear, however, whether this will come true. Because: Many experts assume that Trump’s low tax and deregulation policies will trigger a short-term inflationary boost.
Tariffs also usually cause affected goods to become more expensive at home. In such a case, the Federal Reserve would have to consider higher interest rates rather than lower, says Kiran Ganesh of UBS. Jan Hatzius, chief economist at Goldman Sachs, even said at a conference at the beginning of July that the Federal Reserve could expect five additional interest rate hikes if Donald Trump became president.
Samy Chaar contradicts this interpretation: During Trump’s first presidency, the rise in inflation was deeper than many commentators had previously predicted. He expects the tariffs to raise inflation modestly – but since Trump’s energy attacks are likely to lead to a drop in the price of oil, the inflationary effect remains unclear in Chaar’s view.
But one situation could clearly cloud the American view: the budget deficit has grown rapidly in recent years, and Trump doesn’t seem to want to do anything about it either. “Investors still view US government bonds as a safe haven. If the wind turns, American financial markets will face uncertain times,” says UBS’s Kiran Ganesh.
The unpredictability remains
Should investors bet now on the Trump effect? Ganesh recommends restraint. On the one hand, presidential elections can take surprising turns: In the past, many election campaigns turned out differently than expected. In 2016, for example, markets expected Hillary Clinton to win.
On the other hand, despite the clear forecasts in the presidential race, it is still unclear how unhindered Trump could actually implement his economic policy program. In congressional elections, everything is obviously close, especially in the House of Representatives. If the Democrats keep the majority, they could block Trump’s plans.
Samy Chaar expects Trump to get his second term. And regardless of a possible political blockade, investors can already expect that Trump’s negotiating tactics will create global trade: “Trump is serious: He will demand trade benefits for America from other countries on the international stage .”
#Trump #financial #markets #Protectionism #breeds #nervousness