22 July 2018
“There aren’t going to be trade wars”, said billionaire investor and Donald Trump’s economic advisor Wilbur Ross. Photo: CNBC
“There aren’t going to be trade wars”, said billionaire investor and Donald Trump’s economic advisor Wilbur Ross. Photo: CNBC

What Trump’s victory means for financial markets

Donald Trump’s astounding victory implies tremendous change in US economic policy.

First, would the United States impose heavy tariffs? And would the US change its supportive stance on the Trans-Pacific Partnership?

The aftermath of the 2008 financial crisis is a key factor behind Trump’s victory. The US economy has failed to post a strong recovery since then and many Americans, particularly those in the manufacturing sector, felt they never shared in any of the benefits of the economic recovery.

There are widespread worries that an era of US protectionism may soon start, posing further threat to the already lackluster global economy.

Trump’s widely-quoted campaign threat to impose a 45 percent tariff on Chinese imports has stoked fears of a full-blown US trade war with China.

But Trump’s economic advisor Wilbur Ross said last week: “There aren’t going to be trade wars.”

Ross explained that Trump’s comment has been misunderstood. Those comments amount only to negotiating tactics.

If Trump’s team is playing down concerns of a US-China trade war, there is probably no need to be overly concerned about a deteriorating trade environment.

The next US president also vows to cut taxes and increase spending on infrastructure, meaning the government would play a bigger role in stimulating growth.

If so, inflation could pick up and interest rates may revert to a more normal level sooner than expected.

The global bond market has lost over US$1 trillion in market value within days after Trump won the election, marking the worst performance in last 18 months.

That could be a sign that the three-decade-long bond market boom is coming to an end.

Fund managers said investors are leaving the bond market for equities. This could be just a beginning and such a shift may last for years.

Last week, the BofA Merrill Lynch Global Broad Market Index plunged. The 30-year US Treasury bond yields hit the highest level since January.

By contrast, the Dow Jones Industrial Average posted its best weekly performance in five years last week and hit a record high on Nov. 11.

Goldman Sachs has changed its forecast of the 10-year US Treasury bond yield from 2.11 percent to 2.5 percent.

This article appeared in the Hong Kong Economic Journal on Nov. 16.

Translation by Julie Zhu

[Chinese version 中文版]

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Hong Kong Economic Journal contributor

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