A feature of 2024 has been the number of elections across the globe with more than half of the world getting a chance to vote on whom they would like to steer their country for the next four or so years. As the results have come in there has been one constant: an unhappy electorate voting for change. Last week America voted and despite polls predicting things being too close to call America made a clear call for change with Donald Trump winning by a substantial margin.
Americans trust Trump to look after America’s interests and place more money in their pockets. A Republican clean sweep is possible and with the Senate and House of Representatives also controlled by the Republican party this will make it easier for Trump to implement significant change. This is the most important news for investors and is causing ripples through markets and geopolitics. As investors we need to try to consider the impact on our investments and as human beings the impact on the world that we live in.
Whilst lacking substantial detail on how he would achieve his goals, Trump has promised Americans he will:
- Deport undocumented migrants
- End inflation, cut taxes, deregulate, and impose tariffs
- Cut climate regulations
- End the war in Ukraine
- No abortion ban
- Pardon some of the 6th January rioters
- Sack special counsel Jack Smith
We have written previously about deglobalisation and looking at the Trump agenda he will give the move added impetus. America will become more insular. Accelerating the reshoring of the production of goods in America will be positive for the American economy but will be problematic for overseas economies as overseas businesses will be placed at a competitive disadvantage due to the imposition or increase of tariffs. Interestingly, Trump’s goal to end inflation seems at odds with his pro-growth agenda, which emphasises reshoring and encouraging Americans to buy domestically. These policies would likely push prices higher as the cost of production would increase.
At a simplistic macro level these goals would seem to talk to a stronger American economy, increased US government borrowing and higher USD interest rates and inflation than previously forecast. This would be supportive for American equity investors but potentially problematic for US bond investors, especially those invested in long-dated issues as the long-term cost of borrowing should rise. Overseas businesses that produce goods domestically but rely on American sales would also likely face mounting pressure to relocate production to the US to avoid tariffs. However, doing so would raise production costs and potentially erode profit margins.
‘Drill, baby, drill’ remains part of the Trump mantra. This combined with the promise of reducing climate change regulations does not bode well for our environment. On the flipside, it will lower energy costs in America and possibly globally, which would be supportive for economic growth, corporate earnings and those emerging markets that are substantial importers of oil.
Trump has optimistically promised to end the Ukraine war and all wars. Whether you like or loathe the man it seems clear that he will put American interests first and does not want American tax dollars to fund the military conflict that is ongoing in our world today. Trump is likely to try to broker a peace deal in Ukraine and de-escalate tensions in the Middle East. The prospect of America withdrawing some or all of its financial support from NATO, Ukraine etc could have a profound impact on people’s thinking. If he is successful in these endeavours, it would be very positive for the global economy.
With stronger USD growth and interest rates on the horizon, those brave or foolish enough to predict exchange rates will be revising their USD exchange rate forecasts higher. Trump has also declared himself as a supporter of cryptocurrency, which should bode well for crypto investors.
There are no guarantees in life, but I suspect that Trump steering America for the next four years will be a positive experience for investors. We held a positive view of the prospects on investment markets prior to his appointment as president and at the margin I think those prospects have improved. One thing I am highly confident of is that over the next four years, Donald Trump will give us much to think, talk and write about.
