Trump is here, look out for disruptions now

Donald Trump, who was earlier sworn at, will be sworn in as President on January 20. Going by his rhetoric, he will cause disruptions of relationships and agreements. Stock markets, which abhor the uncertainty created by disruptions, would react nervously.

Given the size of its GDP ($16.7 trillion) and its huge market, Trump has a lot of economic muscle to flex and has started to use it. He has succeeded in arm twisting automakers (GM, Ford, Toyota, Hyundai) to invest in the US instead of in Mexico, on the threat of facing an import duty of 30 per cent if cars made in Mexico service the US auto demand. Some $15 billion of investment into US has been committed already.

Trump is threatening to disrupt almost everything, making existing agreements, relationships and matters open to re-negotiation.

Domestically, for example, he has lashed out at big pharma accusing it of using lobbying power to get higher prices from the US government, which is the largest buyer. The pharma industry will come under great pressure to reduce prices. Healthcare costs are 17.8 per cent of US GDP and need to come down. Trump is threatening several countries on different counts. He is threatening to tear up the Joint Comprehensive Plan of Action (JCPOA) agreement signed with Iran, under President Obama.

Under JCPOA, Iran has to reduce the number of centrifuges significantly and under supervision. The agreement seems to be a major step towards ensuring that Iran does not have the ability to make nuclear weapons, and it is uncertain what Trump hopes to achieve by tearing it up.

He may also re-impose sanctions on Iran, which includes a curb on sale of crude oil, affecting the price of crude. Trump is also taking up cudgels against China, both economically and geopolitically.

He accuses China of currency manipulation and wants the renminbi to be stronger, and the US dollar weaker, to give greater competitive edge to US manufacturers. He is willing to tear up the Trans Pacific Partnership (TPP) agreement, leading us into an age of bilateral agreements on trade rather than multilateral agreements. China is alarmed at this threat to globalisation, enough for President Xi to speak about it at the WEF.

Geopolitically, he has needlessly riled China by accepting a congratulatory call from Taiwan’s President and going against the established ‘one China policy’.

Trump has slammed NATO, and is willing to get closer to Russia for geopolitical reasons, and to agree to a deal which will reduce nuclear weapons on both sides. This would be a good thing. Russia apparently has an excellent anti-missile weapon in its S400 system, and has deployed them in Moscow and on the border with Poland, where President Obama stationed some 4,000 US troops recently. However, in terms of economics, China is more valuable to the US than Russia. China’s GDP is around eight times Russia’s. The US exports more in a month to China than in a year to Russia. China holds $1.1 trillion of US Treasury bills; Russia only $75 billion. So, Trump will find it difficult to sumo wrestle with China.

For India, though, a US-China spat may see greater FDI and FII flows into India, and present an opportunity.

Stock markets would become volatile thanks to the US loudly blowing its own Trump-et. In India, if the Budget carries on sensible economic policies, and if the GST is rolled out in July, as reported, a Trump created fall may be a buying opportunity.

(The writer is India Head, Euromoney Conferences. The views are personal.)

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