In his last term, the Republican increased protectionism and generated a trade war with China.
Last Tuesday (16th), financial market experts pointed out that the American elections may have had an impact on the market. The overwhelming victory of former President Donald Trump in one of the first Republican Party primaries in Iowa is said to have helped create a feeling of risk aversion, especially in emerging countries.
Investors increasingly see it as certain that the businessman will run for his party, unless the judiciary prevents his candidacy due to the accusations related to the Capitol invasion and misappropriation of campaign funds.
In Iowa, Trump received 51% of the votes, well above the second-place Nikki Haley, who had 21%. Additionally, in the polls for the general elections, the Republican also holds some advantage against the current president, Democrat Joe Biden.
“He won by a comfortable margin in Iowa and I think that was somewhat of a trigger, especially for us,” says Luiz Eduardo Portella, a partner at Novus Capital. “I think the market is already starting to look at the Trump issue,” the manager assesses.
The effects on the markets, especially emerging ones, are being mapped out. The issue that weighs on emerging countries, according to Portella, is that Trump, in his last term, had an anti-China and generally protectionist stance.
“From 2017 to 2021, he had a very anti-China stance. He wanted to strengthen the dollar, the American market, and bring jobs back to the country. This led to what is called the Trade War,” explains Portella. “And it’s not just China… Mexico was also heavily targeted by Trump,” he adds.
During his term, the Republican imposed tariffs on Chinese products, trying to reduce the American trade deficit with the country (such as on steel and aluminum) and renegotiated the North American Free Trade Agreement (NAFTA).
Therefore, the perspective is that Trump’s return to the presidency could increase American protectionism again, which would impact China, and consequently, Brazil. On Tuesday, Vale (VALE3), one of the most influential companies in the Ibovespa and highly dependent on China, fell 1.30%.
However, on that day, the Novus partner mentioned that there were other factors that helped pull down the stock markets of Brazil and other emerging countries – such as statements by Christopher Waller, a director of the Fed, who said in a speech that the intensity of the interest rate cuts by the monetary authority will depend on future data – casting doubt on the pace of easing in the U.S. Nonetheless, the U.S. elections also had an influence on the decline, according to the expert.
In an episode of Stock Pickers from December last year, Ruy Alves from Kinea also spoke about the issue.
“He’s going to tighten up on every trading partner of the United States. He will bring back ‘Make America Great Again,’ trying to bring industry back to the United States,” he says. “The chance of him winning is high. We should at least have a scare with the Trump effect, with everyone saying ‘sell China,’ ‘sell exporter to the US.’ We are already positioning ourselves for this.”
João Visotaky Jr, an analyst at Ticker Research, mentions that, for now, what the market is doing is estimating what the billionaire would do if he reaches the presidency.
“It’s necessary to consider the position he will adopt in relation to China: confrontation or appeasement? Perhaps he will adopt protectionist measures, affecting Chinese and Brazilian businesses through limits on the importation of certain industrial products and commodities,” he adds.
The uncertainties are mounting, which is not good for the overall outlook of the risk markets. As pointed out in a recent Reuters/Ipsos survey, Trump and the U.S. President, Joe Biden, start the electoral year in a tie, making a variety of scenarios feasible.
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