MCP Emerging Markets: Trump’s Victory & Uncovering the Silver Linings for Emerging Markets

  

https://mcp-em.com/en/news-insights/581

‘Donald Trump’s inauguration yesterday following his landslide victory marks a pivotal shift for U.S. and global markets. While U.S. equities and the dollar have strengthened in response, emerging markets face a more uncertain outlook due to Trump’s aggressive tariff rhetoric.

Yet, within challenges lie opportunities. Countries like India, Indonesia, and Vietnam, for example, are already benefiting from the “China+1” strategy and appear well-positioned to attract new manufacturing investments. Their competitive labour markets, improving infrastructure, and supportive government policies make them increasingly appealing as companies seek to diversify supply chains and reduce dependency on China.

At the same time, the U.S.’s heavy reliance on imports, particularly from China, reduces the likelihood of sweeping tariffs, which could risk significant domestic disruption. Trump refrained from threatening immediate tariffs on China in his first days in office, and even spoke by phone with President Xi Jinping just days before his inauguration, suggesting that tariffs on China could be more moderate than Trump advocated on the campaign trail. Nevertheless, Trump’s past track record and rhetoric on trade raises the possibility of bold policy shifts that may reshape global trade dynamics in the years to come.

Emerging markets have previously responded to the above dynamics with increased trade diversification and reduced reliance on the US dollar. During the 2018 trade war, for example, China shifted imports like soybeans to Brazil, a move that fuelled record bilateral trade. This pattern could reemerge under Trump’s renewed tariff threats.

Additionally, nations such as India are advancing local currency trade agreements, fostering resilience against external shocks. Intra-EM trade, particularly within Asia, has also grown significantly and is poised to accelerate further, offering emerging markets the chance to deepen their autonomy and global influence.

Overall, while risks are evident, emerging markets could leverage this period of transition to strengthen resilience, diversify trade, and attract investment, positioning themselves as key drivers of global growth in the years ahead.’