We begin this week’s newsletter by examining the outcome of the US election, which saw the victory of Donald Trump, who will be the first president in over a century to serve two non-consecutive terms. Next, we turn our focus to the election’s impact on markets, which saw bond yields rise sharply yesterday as gold continues to appreciate. We end this week’s newsletter by highlighting the effects of Donald Trump’s victory on the global stage, focusing particularly on the Asia-Pacific region.

Trump’s Victory

Why Did Kamala Harris Lose? 

Michael Hirsh, Foreign Policy

How Trump Will Change the World: The Contours and Consequences of a Second-Term Foreign Policy 

Peter D. Feaver, Foreign Affairs

Donald Trump unleashed: what a second term will bring

James Politi and Stefania Palma, Financial Times

How Risky Is a Trump Second Term?

The Editorial Board, Wall Street Journal

The end of an American world

Le Monde

Donald Trump secured a second term as President of the United States, decisively defeating Vice President Kamala Harris. While polls initially favored Harris after she took over the Democratic ticket from an unpopular Joe Biden in July, her lead dwindled as she struggled to distance herself from the administration’s policies and her progressive record and articulate a compelling vision for her presidency. Voters, weary of inflation, immigration issues, and ongoing conflicts abroad, were drawn to Trump’s promises of economic prosperity, a secure border, and a more assertive foreign policy. Trump’s victory was particularly driven by a surge in support among male voters, minority groups (especially Latinos and Black males), and non-college-educated Americans. Analysts believe that this decisive win signals a pronounced shift towards populism and nationalism in American politics, solidifying Trump’s hold on the Republican party for the foreseeable future and forcing the Democratic Party to rethink its platform and electoral strategy.

In terms of policies, Trump has pledged to pursue aggressive trade policies, potentially imposing significant tariffs on Chinese goods, and adopt a more confrontational approach towards US allies. Some believe this could lead to heightened tensions with China, a rethinking of the transatlantic relationship, and a decline in US global cooperation. Trump has also signaled his intention to negotiate with Vladimir Putin over the war in Ukraine, possibly leading to concessions that would solidify Russia’s territorial gains. His administration’s approach to foreign policy is likely to be shaped by a mix of isolationist rhetoric and ad-hoc deal-making, raising concerns among some about instability and unpredictability on the world stage. However, Trump received a strong mandate from the American populace, handily defeating Harris and the Democratic party in a manner that will have significant ramifications for the future of the United States and the global order, especially if the House follows the Senate with a Republican majority.

Markets Election Reactions

Bond Traders Greet a Momentous Week With Their Wagers Reeled In

Ye Xie, Bloomberg

Trump’s Victory Casts a Shadow Over the Federal Reserve

Amara Omeokwe, Bloomberg

What the surging price of gold says about a dangerous world

The Economist

Economists warn that Trump policies will trigger inflation

Colby Smith, Financial Times

The financial world is holding its breath as investors navigate a landscape riddled with uncertainty in the wake of Donald Trump’s return to power. Bond traders, often seen as barometers of market sentiment, are exhibiting extreme caution, scaling back their bets amidst a fog of potential policy shifts. The ICE BofA Move Index, a measure of bond market volatility, has spiked to a one-year high, surpassing levels witnessed even in the tense lead-up to the 2020 and 2016 elections. This dramatic rise highlights the pervasive anticipation of a turbulent period for the bond market as investors grapple with the potential ramifications of Trump’s policies on taxes, tariffs, and the Federal Reserve’s trajectory in the years to come, especially if the Republicans sweep Congress. Adding to this complex equation is the Federal Reserve’s potential decision to lower interest rates by a quarter point today, a move that follows a more substantial half-point reduction in September. This maneuver, aimed at curbing inflation to their 2% target without jeopardizing the labor market, could be further complicated by Trump’s potential to exert public pressure on the central bank, a tactic he employed during his first term.

Trump’s economic blueprint, characterized by significant tax cuts, deregulation, and a firm stance on trade and immigration, has ignited a debate about its potential impact on the economy and the investment landscape. Advocates of Trump’s policies highlight the potential for a short-term economic boost spurred by tax cuts, particularly for corporations and wealthy individuals, leading to increased investment and job creation. They argue that a lower tax environment, coupled with deregulation, could stimulate economic growth, boost business confidence, and ultimately lead to higher tax revenues that offset the initial deficit increase. However, critics caution that this approach carries the risk of rekindling inflation and exacerbating the federal deficit. Trump’s signature tariffs, particularly those targeting Chinese goods (60%), could lead to higher prices for consumers and businesses, potentially fueling inflationary pressures. Simultaneously, his plans to deport millions of undocumented immigrants could constrict the labor pool, pushing wages higher and further stoking inflation. This confluence of factors, amplified by Trump’s track record of challenging the Federal Reserve’s independence, has created a murky and unpredictable economic outlook for investors. Highlighting this apprehension, the price of gold, a traditional safe haven in times of financial and geopolitical turbulence, has soared by 38% over the past year, reaching an unprecedented high of over $2,700 per troy ounce. This surge in gold prices, fueled by a confluence of financial fears and geopolitical instability, reflects a global search for stability as investors seek to safeguard their assets amidst a shifting world order.

What Does Trump Mean for the World?

Why China may be saving its bazooka for Donald Trump 

The Economist

BYD Is Winning the Global Race to Make Cheaper EVs

Gabrielle Coppola and Danny Lee, Bloomberg

The return of Trumponomics excites markets but frightens the world

The Economist

Japan’s Chaotic Politics May Shake East Asia’s Stability

William Sposato, Foreign Policy

With the imminent return of Donald Trump to the White House, global markets have reacted with a surge in US stocks and a rise in the dollar and Treasury yields as investors anticipate accelerated growth from proposed tax cuts and deregulation. However, economists warn of potential inflation spikes due to his tariff plans, as discussed above, which could also spark trade tensions globally. Accordingly, China is recalibrating its economic strategies to hedge against an increase in US protectionist policies. Trump’s economic policies, characterized by protectionism and a willingness to leverage tariffs as a negotiating tool, have sparked anxieties in China, a country deeply integrated into global supply chains. As Trump prepares to impose a potential 60% tariff on Chinese goods, Beijing is carefully weighing its options, recognizing that a full-blown trade war could inflict significant damage on its export-dependent economy. China is pursuing a two-pronged approach, aimed at bolstering domestic consumption while simultaneously seeking to diversify its trade partnerships, potentially deepening ties with other Asian economies and European nations wary of Trump’s protectionist stance. Meanwhile, the Chinese electric vehicle giant BYD is successfully navigating the turbulent global trading system with remarkable success, providing quality EVs at competitive prices. Having increased its annual sales in China fifteenfold to reach 3 million cars in just three years, BYD is now expanding aggressively into approximately 95 markets worldwide, establishing assembly plants in 10 countries across three continents. This strategic expansion, reminiscent of the rise of Japanese and Korean automakers in previous decades, aims to circumvent tariffs and establish BYD as a global household name.

In Japan, in the aftermath of its own tumultuous election that saw the long-dominant Liberal Democratic Party lose its majority, the country is grappling with political instability at a time when its leadership is crucial in countering the growing assertiveness of China, Russia, and North Korea. Despite lacking a formal military, Japan has quietly but steadily built up its defense capabilities over the decades, becoming one of the world’s most formidable military powers, typically ranking among the top 10. This military buildup, coupled with Japan’s burgeoning defense partnerships with nations across Southeast Asia, Europe, and the United States, reflects Tokyo’s growing willingness to play a more assertive role in regional security. However, the political turmoil stemming from the recent election raises concerns about Japan’s ability to maintain this trajectory. A weakened coalition government could struggle to navigate the complex challenges posed by a rising China, a belligerent Russia, and an unpredictable North Korea, potentially creating a vacuum in regional leadership.