Are global financial markets ready for Trump trade? What analysts say

Stock market impact from Donald Trump policies: From higher import tariffs, trade restrictions with China, possible scrapping of Joe Biden’s policies on renewable energy and electric vehicles (EVs), Donald Trump, according to reports, has made his intent clear on what he plans to do in case he gets elected to the White House later this year.

As a sign of continuity at the US Federal Reserve (US Fed), however, Trump, reports suggest, wants Jerome Powell to continue till his term ends.

Meanwhile, the recent assassination attempt on Donald Trump in Pennsylvania, analysts believe, can brighten his prospects and put him ahead in the presidential race with Joe Biden.

 

Among asset classes, V K Vijayakumar, chief investment strategist, Geojit Financial Services, said the assassin attempt on Trump will have a near-term positive impact on safe assets like gold and dollar.

"For the medium-term, this reinforces Trump’s chances of victory in the November elections and therefore, the ‘Trump trade’ is likely to gather momentum on expectations of rate cuts and liberalisation of the regulatory framework. However, if Trump wins the elections and imposes hefty tariffs on imports from China, it is likely to trigger a trade war with China that has the potential to impact global trade and global growth," Vijayakumar said.

But are the global financial markets prepared for Trump’s policies and harsh restrictions?

"Even after listening to Trump directly, it’s hard to say what will happen next. On Election Day 2016, stocks were plunging as Trump moved ahead of Clinton, then suddenly reversed as if they only just realised what it meant. Expect many of those kinds of “Oh yeah!” lightbulb moments ahead if, as it seems, we are moving closer to Trumponomics 2.0 in 2025," wrote analysts at Rabobank International in a recent note.

Donald Trump, according to reports, wants to renew his 2017 tax cuts at a cost of $4.6 trillion, and reduce corporate tax to 15 per cent. That apart, he intends to raise tariffs on China to 60 – 100 per cent, and on the EU too, to an unspecified level.

A 10 per cent across-the-board tariff on imports from other countries could also be on the cards. The only area on which Trump said he could lower prices immediately is via energy costs, which he said meant more drilling

“Trump has also done an about-turn on crypto, picking up a ball that the Democrats were trying to puncture. That would also unleash a further set of asset-price mania that doesn’t exactly scream the need for lower rates,” analysts said.

United States imports from China was $448.02 billion during 2023, according to the United Nations COMTRADE database on international trade.

On a roll

Thus far in calendar year 2024 (CY24), meanwhile, global most frontline equity benchmarks have been on a roll. 

Taiwan Weighted (up 33 per cent), Nikkei 225 (up 24 per cent), the NASDAQ (up 23 per cent) have been among the top performers, followed by S&P 500, DAX, Nifty50 and Straits Times that have gained up to 18 per cent CYTD, shows data.

Global financial markets, according to G Chokkalingam, founder and head of research at Equinomics Research, have not yet fully factored in the possibility of Donald Trump returning to the White House and the ensuing ‘Trump trade.’

"The biggest impact will be felt by China given the recent statements by Trump. India may not be impacted as much. China, on the other hand, is already struggling with its growth rates. More restrictions and higher tariffs by the US (in case Trump wins and enforces his policies) will be detrimental for the Chinese economy. Global trade, however, may not be impacted much even if an additional 10 per cent tariff imposed by the US is imposed," he said.