The former president's possible victory in this year's election could have implications for negotiations with China and Europe
Former United States President Donald Trump emerged victorious from the Republican Party's internal dispute in South Carolina on Saturday (February 24, 2024), increasing the chances that he will become the party's official candidate for the November presidential election. This alerts economists to the consequences of a possible Republican victory.
For financial market analysts, a possible Trump victory could have economic implications beyond the United States, such as increased tariffs on trade with countries in Europe and Asia. This is the view of Orla Garvey, senior fixed income portfolio manager at Federated Hermes Limited.
“While the bond market is largely driven by the macroeconomic environment, the US election certainly has the potential to create volatility in the markets. “Assuming Trump repeats his first term agenda, we could see increases in tariffs with China and Europe as preferred targets tax cuts and stronger fiscal stimulus,” he explains.
“A Trump presidency would be more relevant if Republicans gained control of the House and Senate, and in that scenario we would see the risk of a larger budget deficit,” Garvey added.
“In the current context of large imbalances that need to be financed, this would probably mean that investors would demand higher compensation for buying American debt, therefore steeper curves,” says the expert.
According to Garvey, “Trump has openly criticized Fed Chair Jerome Powell and threatened to replace him when his term ends in 2026; If Powell were to be replaced by a president who is more supportive of monetary expansion, it could have an impact on inflation expectations, which have remained relatively stable so far.”
“Of course a Trump presidency would have global consequences; In the current unstable geopolitical environment and after Trump's recent comments on NATO, the risk of higher government spending is likely to extend to European countries. This raises the possibility of a future review of fiscal rules and would once again highlight the need for higher remuneration in government bond markets,” concludes Garvey.
With information from Investing Brasil.