Now Donald Trump is likely to succeed in winning the nomination for the Republican party to be its candidate for the upcoming presidential elections in the U.S. in November, it seems to be an appropriate time to assess what a Trump presidency would imply for Emerging Markets.
Not much is (yet) known about Mr. Trump’s vision on foreign policy, but he seems to adopt an isolationist and unilateral policy to put America’s interests first using state-of-the art negotiating skills. If there is no immediate (economic) gain to get involved, why bother? And if the U.S. does get involved, its allies (which he calls free-riders) have to commit considerable financial resources as well. Two countries in particular stand out to lose: China and Mexico.
Like most other candidates, Trump has made China-bashing a key element of his campaign. He says that China’s inclusion in the World Trade Organization was a bad deal for America. The Chinese got broad access to the world’s largest consumer market whereas at the same time China kept U.S. companies off its own turf by taking protectionist measures (using tariff and non-tariff barriers) and by weakening the renminbi (Trump quotes unidentified economists that, unlike the IMF, apparently claim that the renminbi is 15-40% undervalued). According to Trump, this trade policy has caused “the closure of 50,000 factories and the loss of tens of millions of jobs”. Trump’s solution is to renegotiate trade deals with China by declaring the country a currency manipulator (which is supposed to bring the Chinese back to the bargaining table). Mr. Trump also wants to lower the U.S. corporate tax rate (to 15%) to make the U.S. a more attractive manufacturing base and to reduce America’s debt pile to avoid blackmail by the Chinese over buying and holding U.S. Treasuries.
Trump’s policy vis-à-vis Mexico is clear. He will erect a wall (maybe the Chinese, experienced wall builders, can help him with that) that the Mexicans themselves will pay for. That should keep out gangs, rapists, drug traffickers and alike that have exploited America’s open borders and committed crimes inside the U.S. This could be done by imposing import taxes (justified because the Mexicans “engage in unfair subsidy behavior”) or by taking a cut on remittances or prohibit them if transferred by “illegal aliens” (i.e. Mexicans without a green card on U.S. soil).
Although Mr. Trump at times sounds isolationist, he wants to build a strong U.S. military force that can “knock the hell out” of Islamic State (waterboarding is for sissies, he says). But as, according to Trump, Islamic State is a larger threat to Saudi Arabia than the U.S. and the latter has not much need for Saudi oil any longer, he expects the Saudis to foot the bill.
One country that could benefit from a Trump presidency is Russia. Donald is on friendly terms with strongman Vladimir Putin. Mr. Trump has said that he would “get along very well” with Putin, whereas the latter praised the American by saying that “he is a bright and talented person without any doubt”. In his “America first” line of thought, Trump doesn’t care much about the fate of Ukraine as, so he says, the U.S. is farthest away from Ukraine and it should be Ukraine’s neighbours that should care and take charge (as well as pay for it). Interestingly, Trump hired Paul Manafort as campaign chief. Mr. Manafort worked for Putin’s ally Viktor Yanukovich, when he was Ukraine’s president. We would not be surprised if Trump lifts sanctions against Russia as soon as he is sworn in as president.
As Trump acclaims to be a savvy businessman, cutting smart deals by being a tough negotiator, it is interesting to see what he achieved in Emerging Markets. In 2011, Trump Ocean Club opened its doors in Panama City. The venture was not entirely successful as Trump’s management company was ousted from management after the owners’ board of directors accused Trump’s managers of exceeding budgets, paying themselves bonuses without permission and passing costs. Bonds used to finance the property development (ticker: TOCLUB) trade at 27-31%. In Dubai, Trump’s comments about Muslims led to a spate with partner Damac, who temporarily removed billboards with Trump’s name on a site where a golf course is being constructed. An earlier attempt to build a hotel on Palm Jumeirah with Nakheel was cancelled in 2011 in the aftermath of the financial crisis. Trump developments in Istanbul and Makati (Manila, Philippines) seem to do well (although Turkish partner, fellow billionaire Aydin Dogan, reportedly is trying to break a contract to brand the two towers with Trump’s name, again because of his Muslim comments), as do large-scale developments in India (probably not to be visited by Indian call center workers anymore after Donald insulted them) and South Korea. So, a bit of a mixed bag.
Donald using the F-word to define his policy
Although RealClear Politics polls show that Hillary will trump Donald in November, there is a non-negligible chance that Donald may make it. In that case, China and Mexico are most at risk and we think it would be difficult for Donald to backtrack on particularly these two policy positions. This, obviously, would be bad news for Emerging Markets and, probably, for the global economy and the U.S. as well.