The Impact of President Trump on Re-emerging Markets

With his plans to build a wall between Mexico and the USA, boost national infrastructure and ‘Make America Great Again’, there were fears at the start of Donald Trump’s presidency that it wouldn’t be good news for any re-emerging markets. It can’t be denied that his role has had a big impact, and in many ways, it has been a mixed bag. In a changing global economy, business leaders need to adopt and adapt their strategies, as RSM explains. Businesses in re-emerging markets therefore should monitor Trump’s impact and adapt accordingly.

A Positive Start for Re-Emerging Markets

In November 2016 as Donald Trump became President-elect, emerging equity markets sharply fell. This was mainly due to promises made during his campaign and fears that protectionist policies would be employed and his deglobalisation comments result in scrapping or renegotiating free trade agreements.

However, due to a number of political blunders that resulted in investor confidence in the US economy falling, capital has kept flowing into many emerging market economies. The low global interest rate environment this has helped form has been highly advantageous for re-emerging markets too. China and Mexico especially feared highly protectionist trade policies would significantly cut their export-led growth but with little of the Trump administration’s economic agenda being delivered, this hasn’t been the case. So far.

Trump’s Trade Tariffs

Recently though, a number of trade tariffs have been introduced by the Trump administration that will hit some key emerging market exporters. When the proposed plans were first announced, there was a broad sell-off across many developed and emerging markets, with shares in Seoul falling by one per cent and Dongkuk Steel by five per cent.

Trump’s trade tariffs include a 25 per cent tariff on 1,333 Chinese products alone, covering imports worth $50 billion from the year before. While the 25 per cent tariff levied on steel will expose other re-emerging markets such as Brazil and South Korea, along with 10 per cent on aluminium. Re-emerging markets that focus on exporting as their main source of growth, especially to the USA, may have to consider new models to avoid such hefty tariffs.

The Future of BRICS

BRICS (Brazil, Russia, India, China and South Africa) are the group of re-emerging markets arguably most affected by Trump’s actions. Trade tariffs and uncertainty around future US economic policy mean that now more than ever BRICS needs to demonstrate itself as a source of power and find solutions within the bilateral and intra-BRICS political landscape.

At the latest BRICS meeting in Xiamen, China back in September, it became clear that India has a central role to play and not just China. In 2016 India registered a higher growth rate than China and even though its economy may still be smaller, the future looks set for much greater growth. Plus, while it is a trade partner with the USA, any action from Trump will affect China much more than India.

Re-emerging markets need to stay aware of any future plans and trade restrictions the Trump administration introduces, to create changing strategies for best dealing with such situations.

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