9 November 2016
The U.S. presidential election outcome seems mildly negative to very negative for emerging markets economies. Presidential candidate Donald Trump indicated that he will break with the trend in traditional international economic affairs set by previous U.S. administrations. He announced a more adverse stance on free-trade, climate change and immigration pointing to a more inward-looking economic agenda that reduces greatly scope for international economic dialogue. President Trump’s effect on emerging markets may therefore depend on how important international trade, climate change and immigration will be in shaping international economic affairs.
Trump’s conciliatory victory speech may suggest a more pragmatic approach vis-à-vis emerging markets. His pledge to “double U.S. [economic] growth” and “to have the strongest economy anywhere in the world” may be beneficial for emerging markets. Trump also indicated “we will get along with all other nations, willing to get along with us” and have “great relationships” is positive. However, his victory pledge to “deal fairly with everyone” but to “put always America first” supports a more confrontational attitude and a more unilateral approach.
Trump’s pledge to adopt highly expansionary economic policies and protectionism will clash with established economic policies. The commitment to increase growth to “3.5 percent per year on average with the potential to reach 4.0 percent” is ambitious. The pledge to reduce the U.S.’ trade deficit may harm emerging markets. The probability of such policies to succeed beyond the short term is low and may cause adverse reversals. This poses a risk for emerging markets.
Trump’s campaign pledge to “create American jobs, increase American wage and reduce America’s trade deficit” points to a protectionist stance. The free trade agenda of Trump’s campaign seems the biggest direct drag for emerging markets. Trump’s campaign committed to renegotiate the North American Free Trade Agreement (NAFTA) may announce significant frictions for one of the largest free trade zones, back of North American integration and for international trade more generally: “Tell NAFTA partners that we intend to immediately renegotiate the terms of that agreement to get a better deal for our workers. If they don’t agree to a renegotiation, we will submit notice that the U.S. intends to withdraw from the deal. Eliminate Mexico’s one-side backdoor tariff through the VAT and end sweatshops in Mexico that undercut U.S. workers.”
The campaign pledge to “bring trade cases against China” also indicates a willingness to adopt a more aggressive stance on international trade. Trump too indicated that he wanted to withdraw from the Trans-Pacific Partnership (TPP). The Obama administration saw five free trade agreements go into effect between 2009 and 2012 (Oman, Peru, South Korea, Colombia, Panama). Trump may result in no new free trade deals for some time.
Trump’s more adverse view regarding climate change may greatly impair a key platform for international relations. His campaign in favour of U.S. self-sufficiency in energy, supportive stance on coal and exploitation of shale energy production and his pledge to “cancel” the Paris Climate Agreement may represent a major setback for climate talks: “Unleash America’s $50 trillion in untapped shale, oil, and natural gas reserves, plus hundreds of years in clean coal reserves.”
The immigration agenda to establish “an impenetrable physical wall on the southern border” and ensure that “open jobs are offered to American workers first” is Trump’s most confrontational policy. It will likely sour relations in particular with Latin America. It may represent Trump’s most tangible policy and set a benchmark for his protectionist stance.
Trump as a business man has maintained investments in several emerging markets. Trump’s organisation in its international real estate portfolio includes properties in Brazil, India, Panama, Philippines, South Korea, Turkey, Uruguay and golf clubs in the UAE. His personal experience of investing in emerging markets may benefit emerging markets.
Trump has married twice women from emerging markets: Ivana Trump née Zelnickova from former Czechoslovakia and his current wife Melania Trump née Knavs from former Yugoslavia. Melania Trump will be only the second foreign-born First Lady since 1829. This shows unambiguously sympathies beyond the U.S. It may be a good thing for emerging markets.
Trump’s benign attitude towards Russia and Russia’s relief from averting a Clinton presidency may allow to reset relations with Russia. This could have wide positive economic repercussions and benefit Russia. The scope and upside for improving relations on a broad range of issues is considerable.
The presidential campaign naturally serves to address a local and in large part partisan audience and Trump may not quite so vigorously pursue all his stated intentions once in office. His victory speech was unlike anything heard while on the campaign trail though being on a high he may be particularly gracious. However, the risk is that he set irreparably the tone for highly conflictive and controversial relationships with emerging markets. The adverse stance on trade, climate and immigration may greatly reduce a basis for international dialogue and cooperation. On the other hand, his business investments, family ties and more open attitude toward Russia may be supportive of emerging markets. There is also of course the uncertainty about what looks like a fundamental transition in U.S. economic policies and its wider effects that complicate any short-term outlook. Trump therefore seems mildly negative to very negative for emerging markets.