Shifting currency power from petrodollars to petroyuans?
In a series of significant developments, the upcoming term of President Trump is set to bring about transformative changes to global economics, emerging markets, and investment strategies.
On Wednesday, 12th February 2025, Joachim Nagel, President of the Deutsche Bundesbank, will deliver a lecture on the natural rate of interest, its measurement, evolution, uncertainty, and implications for policy-making in the coming years, hosted by the OMFIF and the London School of Economics.
Meanwhile, the potential implications of Trump's second term for these areas are multi-faceted. The administration's focus on aggressive tax policy, tariff adjustments, deregulation, and trade positioning is expected to cause shifts in global supply chains and investment flows.
In the realm of global economics, the 2025 tax cuts, popularly known as the "One Big Beautiful" bill, are projected to decrease federal tax revenue by about $4.0 trillion to $5.3 trillion over the next decade, financed largely by increased deficits. Tariffs remain a core strategy, with tariffs on imports from key trading partners leading to increased federal revenue but also attracting criticism for dampening GDP growth and creating market distortions.
For emerging markets, continued and sometimes increased tariffs on key economies could lead to strained trade relations. The repeal of renewable energy tax credits may influence global energy markets, potentially disadvantaging emerging economies investing in clean energy and shifting trade dynamics in energy resources and technologies.
Investors are advised to prepare for increased trade tensions and market volatility. The focus on domestic manufacturing and pharmaceuticals implies a shift favouring investments in U.S. production sectors, with investors prioritising industries less exposed to regulatory and tariff-induced risks.
Mark Sobel, US chair of OMFIF, and Max Castelli, head of strategy, sovereign institutions, UBS Asset Management, will discuss the role of the dollar and various dedollarisation scenarios, focusing on Saudi Arabia's decision to join Project mBridge and its potential implications for the incumbent dollar-based financial system.
Emerging market debt investors may find a compelling case for diversification during Trump's second term, according to Nicholas Hardingham and Stephanie Ouwendijk of Franklin Templeton Fixed Income. The lecture will be broadcast live by OMFIF.
Notable experts such as Geoffrey Yu, senior EMEA markets strategist at BNY, and Udaibir Das, visiting professor at the National Council of Applied Economic Research, have expressed that Trump's second term will be a moment of reckoning for Brics countries and emerging markets, while Jared Franz, economist at Capital Group, suggests that the U.S. economy is moving backwards through the cycle, avoiding a recession.
However, Mark Sobel warns of a potential shock to the global economy from Trump's trade policies, and Beijing is prepared to retaliate against the U.S., as stated by Zongyuan Zoe Liu, Maurice R. Greenberg senior fellow for China studies at the Council on Foreign Relations. The global economy is expected to underwhelm due to significant uncertainty caused by Trump's trade policies.
In conclusion, Trump’s second term policies suggest a more protectionist U.S. trade stance, continued large-scale tax cuts financed by deficits, and deregulation aimed at boosting domestic production, all potentially causing shifts in global supply chains and investment flows. Investors and emerging markets should prepare for increased trade tensions and market volatility, aligning strategies towards sectors favoured by domestic policy and hedging risks from tariff impacts.
- The lecture by Joachim Nagel will focus on the natural rate of interest, providing insights for policy-making in the coming years.
- The upcoming term of President Trump is expected to bring about changes in global economics, with a focus on aggressive tax policies and deregulation.
- The One Big Beautiful bill, a 2025 tax cut, is projected to decrease federal revenue significantly, financed largely by increased deficits.
- Continued tariffs are expected to strain trade relations, particularly for emerging markets, and may influence global energy markets.
- A shift towards investments in U.S. production sectors is anticipated, with a focus on industries less exposed to regulatory and tariff-induced risks.
- Mark Sobel and Max Castelli will discuss the role of the dollar and potential implications for the incumbent dollar-based financial system.
- Emerging market debt investors may find a compelling case for diversification during Trump's second term.
- Trump's second term is deemed a moment of reckoning by experts for Brics countries and emerging markets, with potential shocks to the global economy from his trade policies.
