Since the 2016 election, markets appear to have been buoyed by the prospects of a pro-growth agenda driven by a potentially business-friendly administration.
But concerns about the new administration’s approach toward global engagement are tempering that enthusiasm. An increasingly adversarial approach toward trade, more restrictive immigration
In its third report in the “POTUS 45" series, entitled "Global engagement—walking a fine line,” CIO Wealth Management Research (CIO WMR) looks at the implications of an emerging “Trump Doctrine” on global engagement that represents a clear break from the U.S. orthodoxy of the past seven decades.
- A Trump Doctrine is emerging, guided by the principle "America First," which entails a fundamental shift in American foreign policy. It rejects multilateralism and evaluates all relationships by the economic bottom line, leading to a transactional approach to interactions.
- Improving the trade balance is a primary goal. The administration has already indicated a desire to renegotiate NAFTA. It could use anti-dumping and countervailing duties on particular imports, bring complaints before the WTO, label China a currency manipulator, and potentially impose new tariffs.
- The Trump administration is likely to continue aggressively enforcing immigration laws and actively seeking to deport illegal immigrants.
- U.S. growth could suffer as the negative impact from new trade barriers, tighter immigration, and an uneven foreign policy erode the positive effects of the pro-growth agenda. The effects are likely to be uneven across countries and sectors. They should also be inflationary.
- Most markets don't appear to be pricing in global engagement risks. Trade barriers should be bad for risk assets, especially globally focused companies. They should also lead to USD appreciation in the short term, but the Trump Doctrine risks weakening the USD over the long term.
Talk to your UBS Financial Advisor about how your portfolio can be best positioned for future policy changes and market movements.