Global uncertainties surrounding Trump victory, says Fitch

Donald Trump’s victory in the US elections has cast a shadow of uncertainty over future US policy and other sovereigns, according to a report by Fitch Ratings on Thursday.

Trump’s plan to renegotiate the North American Free Trade Agreement (NAFTA) would have a direct impact on Canada and Mexico, the report said.

It added that his overall protectionist view on trade would also impact China and other Asian economies that supply intermediate goods to the country.

“If the new administration pursued more aggressive tariff policies towards China, we would expect China to take counter measures, with adverse consequences for growth and inflation in both countries and potentially RMB depreciation and risk aversion in financial markets that would likely spill over into other emerging markets."

The rating agency however believes the changes will be limited to incremental measures due to expected resistance from US corporate lobbyists and Republican legislators.

On foreign policy, Fitch said Trump’s campaign rhetoric lacked detail.

He spoke favourably about Russian President Vladimir Putin, which the report asserted could mean he will take steps to extend Russia’s sphere of influence.

Increased spending on defence in Europe, Asia and the Middle East would add pressure for looser fiscal policy as well as give China an opportunity to expand its regional strategic presence.

Trump’s victory highlights the rise of an anti-establishment populism, it added, saying that may lead to mainstream parties to accelerate fiscal loosening or cut back on structural economic reform.

Fitch said financial and commodity market reactions could also affect sovereigns outside the US.

Some commodity prices rose in anticipation of US fiscal stimulus but higher treasury yield could push up funding costs for other sovereigns.

A stronger dollar may also be negative for emerging markets with significant foreign currency debt burdens, the report concluded.