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.
The Election Raises Risk for the US Rating
For the US sovereign credit outlook (rated AA by Scope Ratings), the election results raise risks. Even if Republicans regain simple majorities of both chambers of Congress, there is still likely to be a battle early in 2025 around lifting or suspending the debt ceiling as Republicans lack a filibuster-proof Senate majority amid Trump’s plans for extra federal spending and tax cuts.
Trump’s expansionary fiscal agenda, with his policies anticipated to add up to USD 4.1trn to USD 5.8trn to the budget deficit over the coming 10 years, would further weaken fiscal metrics. The implementation of more-protectionist and anti-immigration policies suggest longer-run brakes on economic growth, and likely higher inflation.
Finally, there is risk under the second Trump presidency of further weakening of US institutions, such as of the rule of law, further politicisation of the judiciary, challenges to the independence of the Federal Reserve, and acceleration of a gradual erosion of the dollar’s reserve-currency status.
For a look at all of today’s economic events, check out our economic calendar.