US Election:
Trump, trade, and foreign policy

What would a Republican presidency look like?

The 2024 US Presidential Election is currently too close to call. Opinion polling shows Democrat Kamala Harris ahead nationally, but polls are within the margin of error in the critical swing states that will decide the election. That means traders need to be prepared for either eventuality – a return of Republican former president Donald Trump to the White House, or victory by current vice president Kamala Harris.

We have already examined some of the key policy debates that separate the two candidates – energy, manufacturing, and defence among them – but one of the most important questions for FX and equity traders will be trade policy. On this point, Donald Trump’s 2017-2021 presidency broke with decades of Republican orthodoxy in favour of free trade, introducing tariffs on common industrial goods, aimed in particular at Chinese manufacturers. Trump has already indicated he will introduce new tariffs, as part of a general pivot in US foreign policy away from the Middle East and towards confronting China.

“Trump trade policy for 2024 is hardline: a 10% tariff on all imported goods, and a 60% tariff on goods imported from China”

2016: Trump trade war

Donald Trump’s presidency was marked by a ‘trade war’ – competition between manufacturing nations to make imports from their rival more expensive, protecting domestic manufacturers. For Trump, China and Mexico were both beneficiaries of what he saw as lax industrial policy, and his response was to place tariffs of up to 25% on over $250 billion worth of Chinese imports. The effects of these tariffs are hotly contested, with opponents arguing they increased prices and slowed US economic growth, while supporters claim they protected US manufacturers and created new jobs.

Democratic president Joe Biden did not repeal any of these tariffs, and instead added new ones targeting Chinese electric vehicles. This had a direct impact on stocks like Xpeng who export Chinese-made electric cars. Donald Trump has promised extensive new tariffs if he is elected president in 2024, potentially widening the scope of the Trump trade war and increasing tariffs on Chinese goods to 60%. Trump China policy is likely to be aggressive, which could have serious implications in the FX market and for US equities.

Will there be new tariffs?

Trump trade policy for 2024 is hardline: a 10% tariff on all imported goods, and a 60% tariff on goods imported from China. The strategy is to make American manufacturers more competitive, and to encourage foreign businesses to set up production facilities in the United States to avoid paying tariffs. Kamala Harris has not made a clear statement on whether she would keep, extend, or scrap existing tariffs. The Democratic candidate instead hopes to raise revenue by increasing taxes on very wealthy Americans and has avoided making clear statements on tariffs. That said, the radical 60%/10% scheme has been criticised by many Democrats and it is very unlikely Harris would support this policy, though existing tariffs may be left in place.

Trade war impact on markets

Traders concerned about a US-China trade war will be looking at US equities, which some analysts believe underperformed as a result of the Trump trade war during his last presidency. Domestic manufacturing companies may benefit from the tariffs, as will the US dollar, but consumer goods and finance companies are likely to suffer as goods become more expensive. The US dollar tends to benefit from tariffs, because US importers no longer need to exchange dollars for local currency to buy foreign goods. Conversely, currencies like the Mexican Peso may trend downwards following a Trump victory as they are reliant on exports to the United States. That makes long USD/MXN a classic Trump trade.

Foreign policy

Trump’s confrontational rhetoric towards China and Chinese manufacturers forms part of a broader debate within the American state about the US’ attitude to the outside world. Generally speaking, Trump represents a strand of isolationist foreign policy that was last popular in the 1910s, gradually losing out to interventionism during the Cold War. From the Clinton presidency onwards both parties developed a consensus; supporting regular US military intervention overseas, in Europe (Serbia), across the Middle East (Libya, Iraq, Syria) and in Asia (the Philippines, Afghanistan), while maintaining a large overseas military presence and supporting NATO after the fall of the Soviet Union.

On the Middle East, both the Republican and Democratic parties advocate very similar positions, but Trump and particularly his running mate J.D. Vance have expressed scepticism about US support for Ukraine and involvement in other foreign conflicts. These positions are extremely controversial within the Republican Party, and have led senior Republicans, including former Republican vice president Dick Cheney, to endorse Kamala Harris. Given the divisions within his party, it is not clear how far a Trump victory would alter long-standing US foreign policy, but a move away from interventionism could potentially spell trouble for defence stocks, such as Lockheed Martin, or other stocks with military contracts, such as Boeing.

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Conclusion: how can traders prepare?

The US election is close, and unless polls change significantly in the coming weeks the outcome will be unknown heading into November 5th. That means traders need to understand what both a Trump and Harris presidency would mean for financial markets. Trade and foreign policy is one of the areas where the differences between the two candidates are most stark, with isolationism and protectionism (the use of tariffs) two of the most important characteristics of Donald Trump’s platform. These policies have a direct impact on US equities and global FX markets.

If Trump wins, Trump trade policy means stocks of Chinese manufacturers could come under immediate pressure, US consumer goods may sell off, while American manufacturers and the US dollar will likely see gains. Under Trump, US-China relations will be strained, and a full-blown trade war is likely. It’s important to remember that Trump’s stances on foreign policy are controversial within his own party, so it remains to be seen how much of his agenda he will be able to implement if he does win in November. ADSS traders should consider polling numbers when they take out positions involving the US dollar or US equities in the run up to November’s election.

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