Tariff Pledges Raise Likelihood of Trade Conflicts
A particular concern is trade. Trump’s campaign pitches of a hypothetical 10% across-the-board tariff on imports and 60% or above on those from China enhance the likelihood of trade conflicts and could make for a rise in credit premiums, notably in emerging markets. Likewise, the possibility that the US might halt funding for Ukraine’s defence against Russia and unwind alliances and involvement in multilateral institutions exacerbates geopolitical risk.
In terms of domestic economic policy, Trump’s plans are generally reflationary and may require tighter Federal Reserve monetary policy and higher global interest rates than otherwise needed. This could create extra economic volatility and financial-system risk over the medium run despite any near-term boost for the economy.