Is Trump Coming Back? Global Markets Brace for the 'Trump Shock'

10% Universal Tariff Causes Trade Conflicts and Stock Impact
US Weak Dollar, Inflation, and Investment Decline Expected

On 'Super Tuesday,' U.S. President Joe Biden and former President Donald Trump solidified their positions as leading presidential candidates for the Democratic and Republican parties, respectively. As a result, major foreign media reported on the 6th (local time) that investors worldwide are preparing for the possibility of Trump's return to the White House.

First, tensions are expected to rise in the trade sector. Since former President Trump has announced plans to impose a 10% "universal tariff" on all products, conflicts between the U.S. and major trading partners may arise, potentially shaking the global stock markets, which are currently at record highs.

Former U.S. President Donald Trump [Photo by Yonhap News]

Concerns are particularly high in the European Union (EU) and China. Former President Trump stated he would impose a 60% tariff on Chinese products, and Capital Economics forecasts that such measures could reduce China's gross domestic product (GDP) by up to 0.7%. This could negatively impact the Chinese yuan and stock market. During his term, Trump imposed tariffs on $200 billion worth of Chinese goods. Michael Metcalf, Head of Macro Strategy at State Street, said, "There is a lot of bad news for China, but nothing compares to a 60% tariff."

The EU is worried that tariffs on European steel and aluminum, which President Biden had suspended, might be reinstated, or that EU regulations on U.S. big tech companies or restrictions on automobile exports could be imposed.

The EU's concerns extend beyond trade. NATO countries are considering increasing defense spending. Last month, during a campaign rally, former President Trump said he would not protect NATO allies who do not pay their defense costs even if Russia attacks, and instead encouraged Russia to do as it wishes. In response, EU countries are discussing issuing joint bonds to increase defense spending. Germany has set its NATO defense spending target at 2% of GDP for the first time since the end of the Cold War.

Morgan Stanley noted that aerospace and defense industries have become the most popular sectors within European global funds. Foreign media analyzed that this trend could be further fueled as defense stocks have doubled in value over the past three years.

Regardless of whether Biden or Trump wins, the U.S. stock market is expected to deliver positive results by the end of this year. However, the U.S. market is not without challenges. Joseph Kalish, Chief Macro Strategist at Ned Davis Research, said, "If former President Trump retaliates, it could lead to a weaker dollar, rising inflation, higher bond yields, and reduced investment."

The situation in Ukraine is expected to worsen if former President Trump is elected. During his campaign, Trump complained about spending billions of dollars on aid to Ukraine and called for easing tensions between Ukraine and Russia.

The Mexican peso is also expected to fluctuate. The peso has served as a barometer of the impact of U.S. politics on emerging market economies. When Trump was elected in 2016, the peso fell 8% within a week, and when President Biden defeated Trump in 2020, it rose 4%. Recently, immigration and border control issues have gained significant attention among U.S. voters. However, analysts point out that Trump has not raised issues regarding trade with Latin American countries so far. Meanwhile, Mexico is preparing for elections on June 2, with the ruling party currently leading in polls.

Pedro Quintanilla Dieck, Chief Emerging Markets Strategist at UBS Global Wealth Management, said, "As elections approach in both the U.S. and Mexico, expectations for policy continuity in Mexico and low uncertainty regarding bilateral trade relations could help mitigate exchange rate volatility."

This content was produced with the assistance of AI translation services.