Trump 2.0: A Boon for Emerging Markets?
My last blogpost on Trump sparked quite a debate, so I thought it might be worth sharing more of my thoughts on what a second Trump presidency could mean for emerging markets.
The US economy presents a mixed picture. On one hand, GDP and employment figures remain relatively healthy. On the other hand, household debt surged to a staggering $17.94 trillion as of Q3 2024. Inflation and stagnant wage growth have pushed many Americans to increasingly rely on credit cards and loans to make ends meet.
Trump has been vocal about wanting to lower interest rates, which could provide some much-needed relief for borrowers while stimulating faster growth and creating more jobs. If executed right, wages would rise and unemployment would drop, giving Americans a better chance to meet their financial obligations. That said, there’s always the risk that such a move could reignite inflation, putting even more strain on household budgets if not handled carefully. (Though it’s worth noting that with decreased money supply, the trend for inflation is also down, since inflation numbers follow money supply movements with a one-year lag.)
A major focus of Trump’s presidency has been tariffs, which remain one of the most controversial aspects of his economic strategy. I believe that the tariff threats by Trump are not only a way to boost public revenue to address the government deficit, but also an important bargaining chip to get countries to come to the table and negotiate. Case in point — just earlier this week, Trump said that he would hit China, Mexico, and Canada with new tariffs as soon as he takes office in January. But the proposed tariffs are conditional — once these countries take action to stop illegal immigrants and Fentanyl from entering the US and once there is reciprocity in trade relations, the tariffs would be removed. Those tariff statements are a clever way to push trading partners into action even before he officially takes office. They accelerate his agenda, so he will be able to get earlier results. Just the day before, Trump reportedly spoke with the Mexican president, who pledged to crack down on illegal migration into the US immediately.
Meanwhile, critics argue that tariffs imposed during Trump’s first term hurt US consumers and drove up prices. But I believe the economic burden of tariffs is not as straightforward as it might seem. In some cases, countries devalue their currencies to remain competitive, and many US companies have been diversifying their supply chains to reduce their tariff exposure. Additionally, technological advancements have started making domestic manufacturing more viable, partially offsetting the impact of trade barriers. With Trump’s planned tax cuts and, more importantly, his reduction of government bureaucracy, American businesses will become more efficient and competitive versus their offshore counterparts and thus will be able to compete in the home market. While tariffs can lead to short-term disruptions and higher costs, they may also drive long-term changes in trade patterns that could create opportunities for both the US and certain emerging markets, depending on how these shifts are managed.
Perhaps the most significant impact of a Trump presidency on emerging markets would be the shift away from dependence on China. By encouraging other nations to step in as suppliers to the US, Trump’s policies could open doors for economies in Asia, Eastern Europe and Latin America. These regions, with their lower costs and competitive currencies, could be well-positioned to benefit if they can scale up production and establish reliable trade partnerships. Besides, Trump’s emphasis on winding down global wars and tensions in Ukraine, Taiwan, and the Middle East could also potentially foster a more stable environment for emerging markets to thrive.
Looking at the US stock market, some analysts have taken a bearish view. Goldman Sachs, for instance, predicts annualized S&P 500 returns of just 3% over the next decade, a stark contrast to the 13% annual returns of the past ten years. However, this forecast may have underestimated the ripple effects of Trump’s policies. While the US economy itself may not grow at an explosive rate, many American companies derive a significant portion of their revenues from emerging markets, where growth is far outpacing that of developed economies.
Among emerging markets, India stands out as a clear winner. With its fast-growing economy and growing manufacturing base, India is well-positioned to benefit from shifting trade dynamics and increased US engagement. Other Asian economies, along with key players in Eastern Europe and Latin America, are also likely to thrive as global trade patterns realign under Trump’s policies.
Love him or hate him, Trump’s economic strategies could have a big impact on emerging markets. By shaking up global trade and encouraging diversification, a second Trump presidency could create new growth opportunities for countries willing to adapt.