The election of Donald Trump as U.S. president creates new uncertainties for the global economy at a time when growth is already fragile, and overseas markets are reacting accordingly. Due to fear of Trump’s promised protectionist approach to trade and “America-first” policies, the day following the election the Nikkei index in Japan fell more than 900 points, The Philippine Stock Exchange sank to a 7-month low, and billions were wiped from Australian Security Exchanges. Foreign exchange expert Pablo Soria de Lachica discusses these early consequences of Trump’s proposed policies, and the long-term impact his actions will have on economies outside of USA.
Following a campaign marked by fiery anti-foreign rhetoric, radical promises and shifting positions on key issues, many are uncertain about the direction in which President Elect Trump will take the world’s largest economy and consumer market. As a result, risk to global growth continues to rise as companies wait and evaluate the prospective actions of Washington, D.C. If Trump enacts announced trade limits, industrial areas in China and the EU, where 18% and 14% of all exports go to America, respectively, will suffer significant losses and in turn severely disrupt global supply-chains. In Germany alone, 1.5 million jobs depend on goods shipped to the United States.
When the key aspects of Trump’s proposed economic agenda are examined, — higher tariffs on trade, curbing illegal immigration, increased federal stimulus, and tax cuts for corporations — analysts find that while the plan may give the U.S. a short-term bump in GDP, it would impede growth on a global scale. Predicted lower imports and Federal Reserve Rate hikes, combined with higher servicing costs for debt held in dollars, will curtail activity in emerging markets and cause global GDP to decline. The chief economist at Goldman Sachs, Jan Hatzius, explained to clients in his 2017 outlook, “the reason for the greater impact is that the Trump agenda is likely to result in higher US interest rates and therefore a stronger dollar. This has negative spillover effects on other countries, especially emerging markets with fixed exchange rates or dollarized economies.”
Mexico has the most to lose should Trump keep his campaign promises, noted Pablo Soria de Lachica. On November 9th, in the wake of the election result, the peso plummeted seven percent, the most of any currency in the world. More troubling, however, is the large dollar debt owed to America. The deficit becomes more expensive as the value of the dollar rises, and if Trump’s protectionist policies are passed through congress, Mexico will not be able to grow through its trades.
Pablo Soria de Lachica is an internationally acclaimed broker and foreign exchange expert. A graduate of the Universidad Tecnológico de México, Pablo specializes in international trading, the development of online trading tools, market analysis, and day-to-day business operations. He presently collaborates with Kartoshka, a leading global developer of technologies for sales, telemarketing and customer support.
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