The election of Donald Trump as the 45th President of the United States could alter the balance of global trade dynamics and change the geo-political landscape. Our analysts give their quick reaction to the result and what it might mean for each region, the markets and big ticket issues such as climate change and the human rights landscape in the US.
- Africa has barely been mentioned by president-elect Donald Trump during the campaign. In fact, Trump’s engagement with the continent thus far has been limited to a handful of posts on Twitter.
- It is likely that Trump will be restrained – to some extent – by career officials in the State Department from implementing radical changes to US Africa policy. Even if he is genuinely determined to cut aid and rewrite trade relations, other more pressing priorities are likely to get in the way.
- Nevertheless, cuts to the US$7.1bn package that the US plans to deliver to Africa next year would chime with Trump’s populist rhetoric. Trump has claimed that “every penny” donated to Africa is “stolen”, and in 2014 he criticised Obama for helping fight Ebola.
- However, he has since acknowledged that aid can stabilise vulnerable countries, and has promised to “lead the way” in Aids relief. So there are some grounds for hope that Trump would not make extreme cuts, even if aid spending is almost certain to fall.
- Regarding trade agreements, African leaders will be concerned by Trump’s pledge to scrap trade deals that hurt American manufacturers. The president decides which countries receive duty-free and quota-free access to the US market under the African Growth and Opportunity Act (AGOA).
- Since most African exports to the US are either natural resources or low-value goods, lobby groups rarely argue that AGOA has hit American jobs. When such pressure does arise, Trump would be likely to take an aggressive stance on the legislation.
Ben Payton, Head of Africa Research
- With Trump holding an anti-free trade stance, we are likely to see negative impact on US trade and investment in Asia. As Trump looks to bring US businesses back to the homeland and punish companies outsourcing manufacturing abroad, it will be bad news for factories in Asia.
- From a geopolitical perspective, Trump won’t be able to fundamentally alter US treaty commitments with its allies in the region without congressional support. As the Republicans are set to retain control of the Capitol Hill, the party is unlikely to entertain any attempt that may undermine established security commitment between the US and Japan/South Korea.
- China will benefit from Trump’s isolationist foreign policy, as it will give the country a chance to assert more influence over the region and beyond. Ultimately, Beijing would be happy to see a drawback of US military activities in the South China Sea.
- The biggest source of tension between Beijing and Washington under Trump will be bilateral trade. The imposition of punitive trade tariffs would hurt Chinese exporters, particularly in the electronics sector, and it will likely result in tit-for-tat trade barriers being imposed by Beijing.
- Trump has consistently argued that Japan should shoulder more of the costs for its national security. Should the US scale back its military presence in Japan, Tokyo would need to increase defence spending to compensate, which would expand its chronic budget deficit even further.
- Most significantly, Trump’s victory signals the death knell of the Trans-Pacific Partnership (TPP), which is not something Japan wants to see. The TPP was projected to boost Japan’s GDP by 2.7% by 2030.
- If US-Philippines ties weren’t in jeopardy before, they are now. Trump is likely to approach the military alliance with the Philippines in a similar way to Duterte; with scepticism.
- Any sign that the US is now a less than reliable partner on trade will make Manila even more regionally-focused and turn it towards Beijing and Tokyo to fill the gap. Likewise, Malaysia and Indonesia will continue to look to China and other regional peers for investment and partnership.
Guo Yu, Head of Asia Research
- Prospects for concluding the Transatlantic Trade and Investment Partnership (TTIP) between the US and EU were already extremely poor, but in light of Trump’s anti-trade platform, the deal stands virtually no chance of being agreed. However, beyond that, Verisk Maplecroft does not expect a change in current trade arrangements between the US and EU. Given Trump’s opposition to trade deals, the EU commission is unlikely to pursue closer trade arrangements with the US.
- In the UK, Brexiters will take heart from the victory of another anti-establishment figure. However, the available evidence shows that Trump has been consistent in his opposition to free trade. His political sympathies for Brexit are therefore unlikely to lead him to prioritise a trade agreement with the UK once the country leaves the EU.
- Based on Trump’s positive statements about Russia while on the campaign trail, Verisk Maplecroft predicts a softening in Washington’s stance vis-à-vis Moscow. Trump is unlikely to support maintaining trade sanctions and embargoes currently in place. The sanctions regime cannot be effective without US participation, and it is highly unlikely the EU will maintain trade restrictions independent of the US. While the Republican Congress may try to tie Trumps’ hands on this issue, it is unclear if they have the legal mechanisms to do so.
- Trump’s success will embolden populist anti-establishment parties across Europe, particularly the French Front National, which also seeks to upend French politics when the country elects a new president in April/May 2017. While the shock victory will strengthen the FN’s confidence, it also holds the potential to mobilise the support of centrist parties should Trump’s presidency get off to a chaotic start.
Florian Otto, Head of Europe Research
- Donald Trump’s victory will trigger a period of severe economic uncertainty for Mexico, as was highlighted by the collapse of the Mexican peso early this morning.
- Mexico has the most to lose if Trump acts on his promise to pull out of the NAFTA agreement, as such a move would kill its export based economy. However, putting an end to NAFTA would be unpalatable for US exporters and intense lobbying by US companies may moderate Trump’s stance on this issue.
- The Mexican Central Bank is likely to hike interest rates to curb capital outflows and defend the peso against a severe depreciation, but tighter monetary policy will only exacerbate the prospect of a recession.
- If he implements his campaign promise, Trump will use the Republican majority in both houses of Congress to undo the liberalisation of Cuba relations spearheaded by Obama. However, the majority of Americans are in favour of ending the embargo. In the best case scenario, Trump will make a concession to non-Cuban-American public opinion and maintain the current status quo.
- Trump’s protectionism will result in a cut-throat currency war, with the devaluation of the Argentine peso and Brazilian real working against the ongoing efforts of those governments to curb inflation.
- The revision of trade relations and bilateral agreements with commercial partners could affect Brazilian exporters, for whom the US is the second largest destination market. Indeed, Trump has mentioned Brazil as one of the countries he believes has benefitted from commercial arrangements he deems unjust.
Jimena Blanco, Head of Latin America Research
Middle East and North Africa
- Without a doubt, confirmation of Donald Trump’s election victory will be met with alarm in both Saudi Arabia and Iran who remain locked in a regional proxy struggle.
- For the wider Middle East, the most immediate impact will be growing US disengagement from the region and a further weakening of ties between the US and its traditional regional allies. For a region faced with multiple crises, a sharp acceleration in this disengagement is likely to prove highly destabilising.
- The Arab Gulf states have already expressed grave concerns over this trend, especially during Obama’s second term. While the end of the Obama presidency has been a welcome prospect in most Gulf capitals, the reality of a Trump rather than Clinton presidency will only reinforce existing fears. This is despite Trump’s strong criticism of the nuclear agreement between Iran and world powers and the very real threat to the deal’s integrity from January 2017 onward.
- More broadly, Trump’s proposed temporary ban on Muslims entering the US will put relations between the US and most of the MENA region on the worst possible footing. Trump’s position on the Israeli-Palestinian conflict will be a wildcard, with the next US president declaring himself ‘neutral’ on the issue. Ultimately, however, foreign policy – particularly in the Middle East – is very unlikely to be among Trump’s key priorities.
- One possible exception will be the fight against Islamic State. A lot will depend on the success of ongoing operations against the group during the rest of 2017, but closer coordination between the US and Russia is a likely outcome next year. While this could place the group under greater pressure, an aggressive US-Russian operation also risks polarising the conflict in Syria and Iraq further.
Torbjorn Soltvedt, Head of MENA Research
- With control over the executive and legislative branches, GOP policy priorities will be prioritised. The main legislative concerns for the Trump administration will range from tax and entitlement reform to the deregulation of heavy and extractives industries.
- However, Trump’s rejection of GOP orthodoxy and fraught relationship with key Republican leaders, including House Speaker Paul Ryan, suggests that there will be a degree of ideological malleability.
- The need to make concessions in exchange for party support will result in the moderation of some of Trump’s more radical policy proposals.
- To address the demands of his core support base suggests that infrastructure spending will increase significantly. An industrial strategy to support moribund industries, particularly coal, will also be on the cards.
- A rise in commercial protectionism will result in an unpredictable business environment for US-based companies, threatening the integrity of current supply chains and deterring investors looking to expand operations in the US.
Arun Pillai-Essex, Americas Analyst
- Clearly a Trump victory was nowhere near priced into markets and the inevitable whipsaw reaction is now playing out around the world.
- As risk aversion takes hold, emerging market assets and currencies are likely to find themselves under sustained pressure in the coming days.
- In times of elevated stress and uncertainty, the dollar has traditionally benefited from safe-haven demand. However, this time any upward pressure on the dollar will be offset by the perceived riskiness of a Trump presidency and a bias towards looser monetary policy.
- Trump’s election could be quite good news for the local economy over the next couple of years. In particular, the probability of lower taxes and an infrastructure spending boost will provide support to domestic demand and GDP growth. Much will depend on who the new president chooses as his key economic advisors and policymakers though.
Key risks for global economy
- If Trump’s aggressive rhetoric on trade and protectionism is backed up by action this could have a domino effect on commerce around the world.
- The potential for trade disputes with large partners, such as Mexico or China, poses a risk of disruption to global supply chains, which would weigh on corporate profits, trade and global economic activity.
- Over a longer time horizon, Trump’s policies might also threaten America’s standing as the global financial hegemon – and hence the dollar’s status as the world’s reserve currency.
- The surge in gold prices following the US election results suggests that investors may already be hedging their bets by seeking out other (non-US) safe-haven assets.
Michael Henderson, Lead Economist
- Just days after the Paris Agreement on climate change came into force, the election of Donald Trump is a nightmare scenario for those wanting to advance the world’s decarbonisation pathway. A Republican-controlled Congress is unlikely to stand in the way of his plans to strip back domestic environmental regulation and pull out of the agreement.
- Technically, the US is unable to exit the Paris Agreement for four years, but Trump could simply ignore the deal’s terms with little recourse. Trump would further undermine the pact domestically if he makes good on plans to ramp up coal production, ditch the Environmental Protection Agency, and scrap President Obama’s Clean Power Plan.
- More stringent environmental regulation and direct government support has promoted clean energy developments over the past decade. Trump is likely to remove these incentives, jeopardising the deployment of renewable energy and the value of clean tech companies.
- However, the falling cost of renewable technologies makes green investments more economically viable with each passing year. These cost savings may prevent such investments being dropped in the absence of federal support. States and cities such as California and New York City are likely to continue to pursue strong carbon reduction policies regardless.
- If the US reverts to a more carbon heavy energy mix, China, India, and other nations have less of an incentive to cut their emissions, which in turn brings forward the risk of dangerous climate change outcomes. Filthy air, rising seas and ongoing droughts may prove a sufficient call to action for these nations, but there will be glum faces at the COP22 summit in Morocco.
Will Nichols, Senior Analyst – Environment and Climate Change
Human rights concerns
- In the immediate term, the biggest concerns relate not to what Trump might do in office, but rather to the consequences of the tensions stirred up by what has been by any measure an extremely bitter and divisive campaign. There is a danger that his victory could embolden extreme elements on the right who have already been energised by his incendiary rhetoric on the campaign trail, leading to an increase in aggression and violence targeting groups such as Muslims, African-Americans, Hispanics, and members of the LGBT community. On the other end of the political spectrum, we may also see acts of aggression by left-wing activists against Trump’s supporters and other actors on the right.
- The vow of Donald Trump to “turn off the jobs and benefits magnet” for those working illegally is likely to have major implications for US-based businesses. With large numbers of undocumented migrants employed in jobs in construction, agriculture and the service industry, a clampdown on workers may have ripple effects in industries across the country.
- Recent data has suggested that there are not enough native-born or legal immigrant workers available to fill the vacancies that would be created should undocumented workers be removed from their jobs. The loss of output in the private sector would be in the region of between $381.5 billion and $623.2 billion.
- It is highly likely within the first 100 days of his presidency Trump will issue an executive order prohibiting U.S. money from funding international family-planning clinics that perform abortions. This would have an effect on women around the world who depend on services that come from US aid. With a Republican controlled house and senate, Trump may also pass new legislation that restricts abortion access for women in the US.
- Trump has said that he would strongly consider appointing judges to overturn the marriage equality ruling. There is the possibility that the Supreme Court could reverse the same sex marriage decision at the federal level. This would leave the issue of marriage equality to the individual states and may result in reduced protections for same sex couples.
Michelle Carpenter, Human Rights Analyst
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