6 November 2024
US election news dominates our headlines. Many are concerned that world trade will suffer in an isolationist second term Trump administration. Jan Fraser Jenkins spoke to Arlie Sterling to get Marsoft’s views.
Will trade suffer in the second Trump administration? Probably not, if history is a guide. Setting aside COVID-distorted 2020, trade grew by 11% during Trump’s first term and, by our estimate, 13% under the Biden administration.
Trump has said he will impose significant tariffs on all US imports and particularly those from China – won’t that be bad for trade? Trump has threatened a “universal” 10% - 20% tariff on imports and up to a 60% tariff on imports from China. Tariffs at that scale and scope would have dramatic consequences for trade. However, if the first Trump administration is a guide, we may see tariffs focused in certain sectors or countries, with a more punitive approach, and allies will be encouraged to “buy America” if they want to stay under the American defense umbrella.
What about Trump’s climate policies? There is a real concern that the US may once again withdraw from the Paris accords and block any global carbon tax initiative, such as those under consideration at the IMO. A robust CBAM mechanism will have to be in place for the EU to be able to maintain its climate initiatives in the absence of a global carbon tax – a policy that will likely put a damper on trade.
Will the second Trump administration restore safe passage in the Red Sea? Trump has made it clear that he wants to reduce US engagement in conflicts around the world. The Houthi attacks are unlikely to be strategic priorities for his second administration. But Israel and Iran are clearly strategic priorities, and our view is that the risk of escalation involving Iran has increased as a result of recent events, including the election. The Houthi attacks are an ancillary issue within this broader conflict and would likely cease with a resolution (one way or another) of the underlying tensions.
How has Marsoft’s changed its view of the prospects for the shipping markets of Trump’s victory? Our Base Case view is that the primary impact of Trump’s trade policies will be to shift the patterns of trade, with relatively small impact on total trade. We are concerned, however, that Trump’s policies increase the medium-term threat of a global macro downturn (although we note that the equities markets do not seem to share that concern). We are putting heavier weight on our Low Case in risk discussions with our clients.
Look for more details of our updated market outlook and risk assessment in our reports to be published in the next weeks.
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