Donald Trump is now President-Elect of the United States of America. Despite all the polls predicting the opposite — just like Brexit, just like the Colombian peace plebiscite — he roundly defeated Democratic candidate Hillary Clinton to re-take the White House for the Republican party.
He will be the first U.S. president who has never previously served in government or the military. He is the oldest man ever elected to a first term in Washington. But his uniqueness somehow goes even further than that to a degree that markets, chief executives, and economic leaders across the world have no idea what to expect.
In the hours leading up to his electoral victory, as Clinton’s defeat become more and more inevitable, futures for the Dow Jones Industrial Average fell 500 points — or nearly 3.0%. S&P futures dropped 2.5%, or 73 points. “U.S. stocks are setting up for a bloodbath of a session Wednesday,” wrote Carla Mozee of MarketWatch.
Photo: Donald Trump speaking with supporters at a campaign rally at the Prescott Valley Event Center in Prescott Valley, Arizona. (Credit: Gage Skidmore )
Emerging market currencies are also getting blasted, with the Mexican peso hitting a historic low against the dollar in the aftermath. It lost some 13% in value to a low of 20.30 pesos to the dollar. As recently as October 26, it was at 18.50 to the dollar. In response, Mexico’s central bank has already called a news conference for Wednesday morning, and many fear that ties between the neighboring nations are doomed.
“It’s an unmitigated disaster,” Jorge Castañeda, a former Mexican foreign minister and New York University professor, told the New York Times. “There are very few tools to fix the relationship.”
The Turkish lira was also down by 1.5%, noted London-based economic research group Capital Economics. Currencies in Asia have fallen as well, while the Indian and Korean stock markets were down by 3.0% and 2.5%, respectively.
“The sell off in emerging market financial markets in the wake of Donald Trump’s victory in the U.S. election has been swift, but policymakers in most countries will look through the initial volatility — only central banks in Mexico and (possibly) Turkey are likely to be forced into defensive interest rate hikes over the coming days,” wrote Capital Economics in a late-night note to investors. “Further out, questions still hang over large parts of Mr. Trump’s likely policy agenda, but the big issue for emerging markets is his approach to trade. Watch out for early noises on China and Mexico.”
The think tank also says that this could send shockwaves through other emerging markets. Colombia, in a year of low growth and high inflation, could be one that could begin re-evaluating its course following the shock victory for Trump.
“Central banks elsewhere in the emerging world are under less pressure to respond, not least because the market moves have been less extreme,” said Capital Economics. “Policymakers in countries with large external vulnerabilities and/or heavy foreign currency debt burdens are the next most likely to act, but only a handful of emerging markets fall into this category.”
But in a comment that could affect Colombia, it added that, “it’s possible that a growing belief that Fed policy will stay looser for longer may ultimately help to settle markets in more vulnerable emerging markets over the coming days and weeks.”
Speculation will continue to drive spikes and drops in different assets classes and locations. For now, the specter of belligerence coming to Washington D.C. is driving fear. And indeed, the rhetoric and bile thrown around during the Trump campaign was not solely reserved for Hillary Clinton.
He was repeatedly, and especially, hostile regarding Mexico and China, two of the largest U.S. trading partners. He discredited the concept of NATO. He ripped free-trade deals like NAFTA and the Trans-Pacific Partnership.
For all the hours of speeches he has given on the campaign trail, few would say they are sure what his international economic policy will look like. In an often-unhinged manner that often left onlookers unsure if he was speaking about an actual policy or simply ranting, he made many statements that drove uncertainty and caused concern. If he does take a particularly aggressive stanch against free trade, many locations, including Colombia, could see fallout — especially if his presidency hurts the U.S. economy.
“The biggest threats to the [U.S.] economy stem from Trump’s protectionist stance on trade, anti-immigration policies, and the weakening of government finances stemming from expected tax cuts,” said Sarah Boumphrey, global lead of economies and consumers for Euromonitor International. “Of course at this point in time it’s unclear how many of his policies he would strive to implement and how many were election rhetoric, so this scenario is still subject to considerable uncertainty.”
But while words and positions have proven to be fluid throughout his campaign, Trump’s speech last night following Clinton’s concession was gracious. He said the right things and preached about inclusion. And he said this not just about his political rivals and the U.S. citizens who did not vote for him — but about foreign nations as well.
“While we will always put America’s interests first, we will deal fairly with everyone — all people and all other nations,” said President-Elect Trump. While he added that, “America will no longer settle for anything less than the best” and that “we must reclaim our country’s destiny,” he was sure to say that, “we will seek common ground, not hostility — partnership, not conflict.”
This runs counter to his pledge to build a wall on the Mexican border, pull out of NAFTA, and attack China for its currency manipulation through the World Trade Organization. And it doesn’t match the expectations that some in Asia have about insinuations that he will reduce the U.S. military presence in the region or ally more closely with Russia.
Mexican President Enrique Peña Nieto, on social media Wednesday morning, highlighted the need for ongoing normalcy in relations. “Mexico and the United States are friends, partners, and allies and we should keep collaborating for the competitiveness and development of North America,” wrote Peña Nieto on Twitter. He followed that up by saying, “I trust that Mexico and the United States will continue to strengthen their bonds of cooperation and mutual respect.”
This is truly a new day. And with such a wild card in office, nobody knows what is coming next. “Beyond the initial market fallout, the focus will shift to the likely policy agenda of the Trump administration,” said Capital Economics. “We have very little to go on here.”