How Trump's victory affects the global economy

Donald Trump's victory immediately excited stocks and cryptocurrencies, but experts say the global economy still faces challenges in the medium term.

Donald Trump's election as president, with the prospect of a new administration prioritizing tax cuts for businesses, quickly benefited the US stock market.

S&P 500 futures were up 1% ahead of the November 6 opening bell, while the Russell 2000, an index of small and medium-sized US companies, was expected to rise more than 2%. Small businesses are likely to benefit the most from the corporate tax cuts promised by Mr. Trump.

In Asia, Japan's Nikkei 225 ended the trading session on November 6 up 2.61%, supported by the outlook for exporters. European markets also started the day in the green. In Paris, the CAC 40 index rose 1.75% in early trading, while the London and Frankfurt bourses rose 0.9% and 0.8%, respectively.

"European markets are being swept up in the euphoria of US stocks," said Mabrouk Chetouane, chief international market strategist at Natixis IM, a French asset manager. This is in contrast to Trump's first election victory in 2016, when investors were surprised and reacted negatively, causing Asian and European stocks to plummet before Wall Street opened and stabilized the market.

Trump supporters at the West Palm Beach Convention Center, Florida, celebrate as Fox News declares him the winner of this year's election. Photo: AFP

This time, the quick results and clear scale of Trump's victory, along with the prospect of Republicans holding the Senate, immediately benefited stock markets, starting with the US exchange.

Samy Chaar, chief economist at Swiss financial institution Lombard Odier, said Trump's identity is to do everything in his power to benefit the US at the expense of other countries. "Therefore, US stocks are in a very good position. European stocks depend on which party holds the majority in the House of Representatives to limit this Trump identity," he said.

Another notable impact from the election was the 10-year US Treasury yield jumping to 4.4%, its highest level since May. Nicolas Bickel, chief investment officer at Swiss financial and asset management group Edmond de Rothschild, predicted that corporate tax cuts, tariff hikes and a crackdown on illegal immigration could impact labor costs, drive up prices and push bond yields to 4.5%.

Trump's victory also brought joy to traders in the cryptocurrency market, which he strongly supported during the campaign. Bitcoin set a new record above $75,300 on November 6 .

However, investors' joy may be short-lived . Reuters said that if Mr. Trump only partially fulfills his campaign promises - raising trade tariffs, loosening regulations, drilling more oil and demanding more from NATO partners - the pressure on government finances, inflation, economic growth and interest rates will spread to every corner of the world.

Republicans also won control of the Senate and are dominant in the House of Representatives, which could make it easier for the president to implement his proposals and push through major appointments.

Erik Nielsen, chief economic adviser at UniCredit, said Mr Trump's fiscal commitments were worrying for the US economy and global financial markets. "They would significantly widen the already excessive deficit and threaten and weaken key institutions," he said.

Mabrouk Chetouane of Natixis IM said there was a fundamental paradox in Trump's agenda: he wanted to fight inflation and restore growth, but all the policies he proposed had the opposite effect. "They could increase inflationary pressures and hinder growth. So be careful about the medium-term impacts, which could be negative for the US economy," he said.

The tariffs, which are 10% on all imports and 60% on products from China, are a key part of Trump’s policy. They are seen as stifling global trade, reducing growth for exporters and deteriorating public finances.

Governments are also likely to retaliate against any US import tariffs, further hampering trade and causing a deeper slowdown in global growth. The International Monetary Fund says global growth is weak. A further negative impact on world trade could pose a downside risk to the organization’s forecast of 3.2% GDP growth next year.

Businesses typically pass on import costs to consumers, so tariffs are likely to increase inflation for US consumers, forcing the Federal Reserve to keep interest rates high longer or even reverse course and raise borrowing costs again.

This will be even more likely if Trump sticks to his stated spending and tax pledges – which could increase the US national debt to $7.75 trillion by 2035, according to the Committee for a Responsible Federal Budget. “Higher inflation would dampen domestic demand, which would be negative for growth,” said Anis Bensaidani of BNP Paribas.

For emerging markets that rely on dollar funding, such a combination of policies will make borrowing more expensive, dealing a double blow to lost exports. As the world’s largest exporter, China desperately needs to revive growth, so it may seek new markets for products blocked by the US and dump its goods elsewhere, especially Europe.

Central banks are likely to react if business sentiment weakens rapidly. "The European Central Bank (ECB) could accelerate rate cuts to the neutral 2% level. With more clarity on US tax policy, a cut below that level would be appropriate," said Greg Fuzesi, an economist at JP Morgan.

Higher Fed rates and lower borrowing costs elsewhere will also boost the value of the dollar, adding to the pain for emerging markets, which hold more than 60% of their international debt in dollars. Mexico could be hit hardest by Trump’s rhetoric on closing the border, which comes amid a worsening domestic outlook.

“Mexico is the most at risk,” said Jon Harrison, head of emerging markets macroeconomic strategy at international investment research and advisory firm TS Lombard. The country is vulnerable to trade tensions and threats of deportation of illegal immigrants that could exacerbate domestic violence issues.

Conversely, among countries that could benefit, Brazil is likely to tighten trade with China because Beijing replaced all of its soybean imports from the US with Brazilian supplies when trade tensions flared during Trump's first term.

Nicolas Forest, chief investment officer at Brussels-based asset manager Candriam, said that in the medium term, Trump's victory raises more questions than answers and the world could enter a scenario it has not yet thought of. "It remains to be seen whether he will actually do what he says," he commented.

Phien An ( according to Le Monde, Reuters )

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