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Market Analysis of Geopolitical Risk from Trump

How a Trump Victory in November could Increase Geopolitical Risk

Donald Trump has had a significant impact on global markets and geopolitical risk. Trump’s policies, ranging from tariffs to foreign relations, have triggered a series of geopolitical risks that have influenced market behavior and investor sentiment. This has resulted in some winner and losers from his past policies. Analysts and strategists have closely monitored the repercussions of Trump’s presidency on the global market and have made projections for the future, particularly regarding the uncertainty surrounding his administration’s policies.

Trump’s presidency had been marked by fluctuating investor sentiments and market uncertainty, attributed to his unconventional approach to economic policy and foreign relations. The resulting uncertainty has influenced market trends and investment decisions, creating a challenging environment for businesses and investors alike. If elected again, expect more volatility in the market.

In addition, Trump’s policies have had implications for different sectors and economic activities, with varying levels of exposure to geopolitical risks. Thus, traders and inverstors should take a sector-specific approach to reflect the impacts of Trump’s policies potentially if he is relected.

How could Trump’s Presideny impact Global Markets?

One of the defining characteristics of Trump’s presidency was his implementation of various tariff policies, particularly on goods imported from China. These policies were aimed at addressing trade imbalances and protecting domestic industries. However, they also sparked concerns about a potential trade war and disrupted international supply chains, leading to heightened geopolitical risks and market uncertainty.

In fact, retaliatory tariffs by the Chinese were targeted on agricultural products and specifically certain states that voted for Trump in the last election. This was done put pressure on Trump to reduce the tariffs on China.

Trump had pulled out of the Trans-Pacific Partnership (TPP) as soon as he took office reversing the decision of former president Barack Obama, noting that this trade deal would hurt US industry and employment. The TPP took years to negotiate with Japan and the US taking the lead and was seen as part of the Obama pivot to Asian. It consisted of twelve Pacific Rim countries including Japan, Australia, Singapore, Vietnam, Chile, Mexico and others comprising 40% of world trade.

In short, the TPP was a way for the US to place counter Chinese economic dominance in Asia. By setting higher standards, it was desinged to improve trade practices in China such as intellectual property and environmental standards if China wanted to apply in the future. In addition, it supported US leadership and staying power in Asia, see Brookings Institute article by Mireya Solis on The Geopolitical Importance of the Trans-Pacific Partnership: At Stake a Liberal-Economic Order.

It was considered a deep Regional Trade Agreement (RTA) that goes beyond the World Trade Organization (WTO) standards in terms of the level of integration and standards among the countries. In addition, it was the centerpiece of Obama’s pivot to Asian strategy. Finally, it was initiated by the Republican President George W Bush in 2008. These talks later became the basis for the TPP.

When Trump withdrew from the TPP in 2017, the other countries signed a new version without the US called the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). China then applied for membership into the CPTPP in September 2021. In addition, China took the lead with the Regional Comprehensive Economic Partnership (RCEP) that includes ASEAN countries plus Japan, South Korea, Australia and New Zealand shortly thereafter in November of 2021.

In short, Trump handing China economic leadership in Asia. This was one of the biggest strategic mistakes of the Trump adminsitrion. The Biden administration to counter this introduced the Indo-Pacific Economic Framework for Prosperity (IPEF). This did not have the same level of deep integration among the countries in the Pacific. Allies in Asian are now worried that Trump will pull out of the IPEF.

Trump sees trade as a win-loose zero sum game. However, this is erroneous and trade cannot be compared to a football match (zero-sum, a winner and a looser). In addtion, the US as the hegemon power is expected to be at a slight disadvantage in the trade deal since the geopolitical gain is far larger. Finally, looking at trade from a bilateral point between two countries is wrong since trade and manaufacturing are complex and it does not make sense to say we need to equalize exports and imports between two countries. This is a neo-mercantilist argument and is false.

On the positive side, bringing supply chains back home (reshoring) and moving them to allied countries (friend-shoring) is positive from a geopolitical point of view. Thus, although Trump did damage with pulling out of the TPP, this is offset by acceleration of reshoring of some supply chains.

Thus, my main concern with Trump from a geopolicial risk point of view in Asia is mainly on trade. He has a distorted view on some aspects of trade and this will hurt US interests.

Insights on Geopolitical Risk of a Trump Presidency on Europe

For Europe, the ongoing conflict in Ukraine and its connection to Trump’s administration has added another layer of geopolitical risk. Trump’s foreign policy decisions and his administration’s stance on the war in Ukraine have contributed to the heightened geopolitical risks in the region, which have implications for global market stability.

Trump is likely to stop or scale down support for Ukraine. This will in effect end the war on Russian terms.

The main worry is if Trump will pull out of NATO. This will be a disaster and significantly hurt US interests as well as weaken the European Union. I would say this is the worst nightmare scenario. John Bolton, the former US Ambassador to the United Nations and then US National Security Advisor under the Trump Administration, notes that Trump was close to pulling out of NATO.

Leaders in Brussels are drawing up plans just in case and in general European leaders are worried about this possibility.

What will be the Foreign Policy of a Potential New Trump Administation?

Analysts have made projections on geopolitical risks during Trump’s potential second term, factoring in the implications of his policy agenda and its impact on global markets. These projections have been crucial for investors and businesses in planning for potential geopolitical risks and market uncertainties in the event of Trump’s reelection.

Keep an eye out for Elbridge Colby as there is a shift in the Republican party away the interventionist Reaganite US policy as the policeman in world affairs. The view is that China is the threat and the Ukraine War is a distraction. Thus, expect the US to retreat from Europe with the Europeans expected to take on a greater burden as the US shifts significantly to Asia to confront China. Thus, I would expect to see US-China relations deteriorating. This would be a change from Biden who was trying to normalize the relationship. Trump has made statements that he would increase tafiffs to 60% or more against China if elected.

Thus, I would not expect the current thaw in relations between Biden and Xi to last. Additionally, I probably do not expect the US to pull out of NATO but for European countries to substantially increase military spending and integrate their milities further. This will be in response to Colby potentially driving US foreign policy while Trump focuses more on domestic (maybe).

In short, I expect the rhetoric during the presidential campaign to be worst than the reality of policies after the election.

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