Investors quickly revisited strategies of the first Trump administration after President-elect Donald Trump vowed new tariffs on Mexico, Canada, and China.
His posts on the Truth Social platform reignited volatility in the foreign exchange market, sending the U.S. dollar soaring against the peso, loonie, and yuan. However, mature traders took his rhetoric as a continuation of his negotiation tactics that they now had better tools to deal with.
Economic Effects on Global Markets
As reported by Reuters earlier, Trump proposed 25% tariffs on imports from Mexico and Canada, linked to drug and immigration problems, and 10% on Chinese goods due to fentanyl-related issues. The latter has raised concerns about disruptions in the economy while heralding his familiar approach toward using tariffs as leverage in trade negotiations.
The Mexican peso and Canadian dollar dropped by over 2% and 1.4%, respectively, before stabilizing. Meanwhile, the Chinese yuan hit a four-month low against the dollar.
Automotive and manufacturing stocks, particularly those reliant on Mexico, faced sell-offs. Honda's shares dropped 2%, reflecting unease over trade repercussions.
Chinese officials noted that drug interdiction efforts have improved and reaffirmed no party wins in trade wars. Experts do think that China could step up its drive toward greater technological independence.
"China already has a template to deal with tariffs in reference to Trump 1.0," Simon Yu, the vice general manager at Panyao Asset Management in Shanghai, said.
Yu added that with regard to tech-related punishments, China could have a solution to combat it through "import substitution" and self-reliance.
"Regarding other clampdowns such as tech-related sanctions, China may accelerate the process of self-reliance and import substitution."
Another expert, Robert St. Clair, the head of investment strategy at Fullerton Fund Management in Singapore, said that any finalized packaging could spell a slight difference from the starting positions.
He added that Trump is all-in on his anti-inflation goals that's why he would continue to improve domestic manufacturing and competitiveness in the country. Therefore, this suggests, that US imports cannot be extreme to an extent.
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The New Normal We Should Accept
While the presidential announcements surprised markets, investors anticipate that negotiations will eventually moderate the threat of even the most inflammatory rhetoric, CNN reports.
For example, Fullerton Fund Management's Robert St Clair opined that Trump's anti-inflation program would require tariffs not to harm U.S. manufacturing competitiveness.
Speaking of tariffs, even gamers should be ready for the big change that is about to come. Gaming gears, according to Tech Times are expected to increase in prices so it's recommended to buy them before the Trump inauguration.
Volatility Looms Ahead
Trump's unpredictable style casts a layer of uncertainty over financial markets. His propensity to make policy changes through social media increases headline risks, and thus investors need to hedge their bets. However, experienced traders remember similar market behavior during Trump's first term, hence equipping them with strategies to overcome the storm.
Preparing for Policy Changes
The financial world braces for another chapter of trade negotiations under Trump's administration. While his policies introduce volatility, they also offer opportunities for those willing to adapt. As one strategist aptly put it, "It feels like we've just had a time warp back to 2016."
Markets may be jittery, but they are also prepared.
