With Donald Trump officially declared the 47th president of the United States, it’s time to look ahead of what to expect. A previous note described his propaganda, which is not expected to be materially different from the real outcomes during his presidency, but as the news of his re-emergence surfaced, there are a couple of certainties expected in the new term. The list is not all encompassing but contains some major points
- China: Xi Jinping has more worries on his plate besides a tough-to-resurrect economy. More tariffs are coming on Chinese goods and China must ‘up’ their trade negotiation game ahead of Trump’s installation. The approach this time is for the Chinese to be strategic, not obstinate, given that they did not hold up their end of the erstwhile agreement during Trump’s last administration. Frankly, given the importance of the American economy to China, they are at the mercies of Trump this time and a tough stance will be damaging than corrective. China will likely have to look for new markets to sell, hence, their caution with the regulations in Eurozone.
- US financial markets: Stocks are in for some solid gains, going by history. The reason is clear, Trump is big on ‘America First’, and what that means is more profits for American corporates, though this will be dispersed across sectors, with sectors like financial services gaining more than the likes of clean energy. While returns are expected to expand, so will volatility and risk. It won’t be all bloomy for bonds, on the other hand, as the risk of holding US bonds has just soared with Trump’s emergence. Investors will dial back their sentiments of US treasuries as a safe haven because of the higher volatility expected. Instead, we can expect a bull run on dollar and dollar futures.
- US Fed: Fed’s independence will face off a fresh risk. Trump believes that monetary policy should be sharp and fast than sluggish. That is, in the current macroeconomic environment, he would push consistently for the Fed to cut rates faster. The likely impact will be a situation where the US has to settle for a higher level of inflation normalization based on the resilience of US consumption.
- Immigration: Trump has been clear since forever – build a huge wall, beef up border security and mass deportation of illegal immigrant. Again, he believes this advances his ‘America First’ agenda. The downside of this, however, is likely higher input cost for manufacturers since illegal immigrants in the US provide some of the cheap labour which keeps production cost low.
- Inflation: connecting higher tariffs on China with surging input cost if Donald Trump deports a sizable chunk of illegal immigrant and an over-pressured Fed, we all can expect higher inflation.
- NATO: ‘No more freebies’. Trump believes that NATO member countries do not contribute enough to the alliance compared to the support they draw. The outlook doesn’t look too good for NATO, which relies heavily on US’ commitment. Trump’s stance means more invasions are looming and smaller countries could reverse their intention to join NATO.
- US banks: higher executive compensations, bonuses and stock appreciations are in view given the deregulation expected to be in play as Donald Trump returns. Downside risk is with Trump’s push for lower interest rates, which can offset some of the impact of the expected deregulation.
- OPEC and energy prices: higher oil prices are expected on the one hand given the resurrection of tensions between Trump and Iran and the re-imposition of sanctions on Venezuela (Moreso, because the country pumps the size of illegal immigrant in the US). The offsetting impact will likely be more US shale production, which is a nightmare for OPEC.
- US debt: with the GOP as majority in the parliament, talks of reinstating the debt ceiling in 2025 may be squashed. If the democrats suspended it during their administration, Trump would fiercely push against it citing harsh economic impact on US households.
- Developing economies: maybe less aids since Trump is kicking back against spending America’s money for the entire world.
- Global growth rate forecasts: cuts are expected as the risk of a full-blown trade war is now above average
- ESG, clean energy and sustainability: Trump cares, but not so much. So, those 2050 net zero emission targets do not seem realistic at this point.
- Canada: Trudeau has a fresh headache, which could affect his political future. With Trump comes more tariffs on Canadian goods exported to the US and more expensive goods imported from the US. That means lower economic growth, higher inflation, rising interest rate, expensive mortgages and other accompanying hassles. The conservatives may have just gotten a low-hanging-fruit.
- US households: ultimately, I think they get the biggest slice of the pie from lower taxes to improved health care, more jobs available for Americans, re-channeling of foreign government spending to American cause.
So, now that Americans have chosen their president, to each man his own, to decide his fate.
Written by Michael Ogunremi