By John Stepak – MoneyWeek Magazine (Great Britain) –
With Trump in, deflation and the bond bull market are on their way out – expect inflation and turbulence and position your portfolio accordingly, say John Stepek and Matthew Partridge.
So much for the predictive power of markets. They didn’t see Brexit coming. This week, they were blindsided by Donald Trump’s election as US president. Yet overall – bar a double-digit slide in the value of the Mexican peso against the dollar – the reaction to Trump’s victory was more muted than for Brexit.
As Paul Ashworth of Capital Economics notes, that’s partly because Trump’s conciliatory acceptance speech suggested he can be a more statesmanlike president than you would have thought from watching the demagogue of the election campaign. But it’s also because the overall policy implications are not entirely clear as yet.
Trump made plenty of aggressive noises during his campaign. On trade, he has vowed to scrap the Trans-Pacific Partnership trade deal between the US and Asia. More importantly, he wants unilaterally to withdraw from the North American Free Trade Agreement (Nafta), unless Mexico and Canada accept major changes. A trade war would hit all three countries hard – 30% of US exports go to Nafta nations, while 75% of Canadian and Mexican exports go to their larger neighbour (hence the slide in the Mexican peso).
The talks would be complicated somewhat by Trump’s pre-election demand that Mexico pay for a wall across the US-Mexico border, to keep out illegal immigrants. Trump has also dubbed China a “currency manipulator”, with the aim of getting Beijing to revalue the yuan higher, making US exports more competitive. China is hardly likely to acquiesce, which could end up in another trade war, with Trump promising to levy tariffs on Chinese goods.
However, will he act on any of these promises?
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