Analysts are experiencing a certain déjà vu, although this time, what is unexpected is at least partly known. The experiences from Trump’s first presidency can prove invaluable for anyone interested in the political-economic situation of the United States. Pre-election announcements suggest that we can expect many changes aimed at improving the competitiveness of the American economy, which may pose a challenge for EU economies.
There is a general agreement about the basic macroeconomic parameters we will most likely be dealing with after Trump’s victory. These include the strengthening of the dollar, an increase in the profitability of American treasury bonds, and an increase in inflation in the US – mainly the result of protectionist trade policy (higher tariffs) and restrictive immigration policy.
In such a situation, the Fed’s approach to the planned interest rate cut path may change. A softer monetary policy could prove a big mistake in the face of risks associated with price increases.
Let’s not forget that Trump, like his political competitor, ignores the growing risk associated with debt. The belief in maintaining the dominance of the dollar in global markets is very strong, although in the longer term Chinese competition may become more significant. American trade wars could have strong repercussions for global trade.
Trump’s election campaign announcements indicate that he focuses on strengthening the American economy and internal security. Tax cuts and the repeal of some regulations introduced during Biden’s tenure seem to be only a matter of time. Stock market investors and cryptocurrency enthusiasts can look at Trump’s presidency with optimism, as there are expectations for legal changes that will facilitate their mining and trading. We will also closely follow decisions related to AI regulations – if they aim at lowering security standards, problems may arise.
Trump will certainly pursue a plan of deregulation and strengthening of the American economy, which is supposed to be supported by activities aimed at increasing the extraction of oil and natural gas and obtaining nuclear energy on a larger scale. Trump’s economic-political agenda may mean significant problems for Europe. The disparity in the competitiveness of Old Continent economies against the American economy may deepen, and the actions of the Trump administration may contribute to the inflow of capital to the United States. The weakening of the euro against the dollar, a rise in prices and the profitability of treasury bonds is a very likely scenario for EU countries.
The greatest concerns are of course international politics, particularly in relation to Ukraine. Its consequences could adversely affect our financial market: less inflow of foreign investment, volatility in the currency market, impact on the increase in the cost of financing the deficit.
For the Polish economy, Trump’s victory means at least in the short term a weakening of the zloty (especially against the dollar) and a greater probability of an increase in the profitability of treasury bonds. Increased volatility in financial markets right after the elections should not last long, as investors usually quickly adjust their strategies. The unknown remains whether they will still react nervously to Trump’s comments in social media – this is still a big question mark. Let us be prepared for the unexpected.
Jarosław Janecki, Chairman of the Board, Polish Economic Society
Source: https://ceo.com.pl/gospodarcze-znaki-zapytania-po-wygranej-trumpa-28332
