DDN Business Insider | Global economy and capital markets to face new challenges after Trump's return
Editor's note: On January 20th, Eastern Time, Trump is set to officially take office as the 47th President of the United States. How will "Trump 2.0" impact the global economy, and how will the capital market evolve? What direction will China-U.S. relations take in the future?
【Anchor】Hello everyone, welcome to DDN Business Insider. I am Yunfei Zhang. On January 20th, Eastern Time, Trump is set to officially take office as the 47th President of the United States. How will "Trump 2.0" impact the global economy, and how will the capital market evolve? What direction will China-U.S. relations take in the future? To discuss these topics, we have invited renowned economists Song Qinghui and Guo Hanbing, postdoctoral researchers from the Institute of Finance at the Chinese Academy of Social Sciences for commentary and analysis. Welcome!
【Anchor】When it comes to the impact of Trump's election on the capital market, the stock market might be the most intuitive and widely affected area. Back on December 12th of last year, President-elect Trump rang the opening bell at the New York Stock Exchange, stating, "The stock market is everything." This led to a noticeable upward trend in U.S. stocks following the election results. However, the U.S. stock market has lost some of its upward momentum and has begun a downward trend. Mr. Song, how do you predict the U.S. stock market will perform after Trump officially takes office?
Trump's presidency could have three significant effects on the U.S. stock market. First, Trump's policy proposals, such as tax cuts and deregulation, may boost U.S. economic growth and corporate profitability, which would substantially impact the stock market. Second, Trump's protectionist trade policies, like imposing tariffs and expelling illegal immigrants, could exacerbate inflation and put pressure on the stock market. Additionally, Trump's policies might lead to rising inflation, affecting the Fed's monetary policies. It's well-known that policy changes of the Fed represent a crucial factor influencing the stock market, as the fluctuation of interest rates directly impacts corporate borrowing costs and investors' risk appetite. Thirdly, Trump's policies may heighten global trade tensions, affecting global economic growth and stock market performance. Moreover, a strong dollar could influence the prices of global currencies and assets, thereby impacting the overall performance of U.S. stocks. In summary, the U.S. stock market's trajectory after Trump takes office will be influenced by policy changes, the monetary policies of the Fed, and the global economic environment. Therefore, investors need to closely monitor these factors in order to make informed investment decisions.
【Anchor】Then, how will the Hong Kong stock market change as a result of Trump's presidency?
The Hong Kong stock market might experience three changes due to Trump's presidency. First, Trump's tax cuts and tariffs could lead to rising U.S. inflation, affecting global market liquidity. Since foreign institutional trading accounts for a significant portion of the Hong Kong stock market, the inflow of foreign capital into emerging markets may weaken, potentially negatively impacting the Hong Kong market. Secondly, some tariff policies introduced by Trump's administration could indirectly affect technology, internet, and AI companies listed in Hong Kong. Although these policies primarily target U.S. imports, they might disrupt and adjust global supply chains, impacting the profit exports of related Hong Kong-listed companies. Thirdly, technology and internet companies in Hong Kong that have close ties to the U.S. market may also face challenges. Trump's policies mainly aim to revitalize traditional American industries like manufacturing and energy, benefiting some Hong Kong-listed companies, but potentially harming newer industries, including those related to renewable energy technologies.
【Anchor】Yes, recent data showed that the U.S. core CPI rose by only 0.2% month-on-month in December, which is below expectations, and the increase of year-on-year slowed to 3.2%. This unexpected cooling of the core CPI resulted in a rebound in the U.S. stock market that day. Ms. Guo, do you believe the U.S. stock market can enter a long-term bull market with the onset of the Trump 2.0 era?
After Trump takes office, the U.S. stock market may initially rise before declining. The initial rise is primarily based on Trump's domestic policy stance, which favors deregulation and tax cuts. Relaxed regulations can create a more favorable business environment for companies, especially in the financial and high-tech sectors, potentially leading to significant growth opportunities. Meanwhile, tax cuts can lower corporate costs and increase profits, effectively attracting investors and driving stock prices up. The following decline is based on Trump's foreign politics. His imposition of tariffs may lead to rising inflation over time, impacting the U.S. stock market, particularly for companies reliant on imported raw materials and components, which could see profit margins squeezed. Additionally, the uncertainties brought about by Trump's protectionist trade policies may undermine investors' confidence, leading them to shift investments away from the stock market, and towards safe-haven assets such as government bonds, thereby exerting pressure on U.S. stocks.
【Anchor】Moreover, the transition of presidential power, particularly the shift in various policies, is also a focal point of public interest. We observed that in the final phase of his term, Biden announced a series of actions including the strictest sanctions on Russian oil, a permanent ban on offshore oil and gas drilling in the U.S., and proposed restrictions on AI chip exports. Last week, a hot topic of discussion was Trump considering an executive order to pause the sale of TikTok or ban it for 60 to 90 days after taking office. How do you expect Trump to adjust the series of policies previously introduced by the Biden administration?
Regarding the TikTok ban, Trump is currently considering pausing the enforcement of the ban for 60 to 90 days, and has expressed hopes of winning the battle over TikTok. The challenge now is not whether the ban can be enforced, but how to effectively pause it. Although Trump is willing to suspend the TikTok ban, getting that past Congress will be difficult. Whether Trump will take unilateral action, or lobby Congress for TikTok after taking office remains to be seen.
Trump has clearly stated that he will overturn Biden's ban on offshore drilling, and is likely to accelerate the approval of domestic oil and gas projects to encourage further development of the shale oil industry.
【Anchor】For example, regarding Biden's administration's announcement of the strictest sanctions on Russian oil, what challenges do you anticipate Trump will face with rising oil prices, and how will his administration respond to that with policy adjustments?
I expect that after taking office, Trump's administration may respond to the challenges posed by rising oil prices through sanctions and maximum pressure tactics. However, every action has its consequences; these measures could disrupt the global oil market's supply and may even further drive-up oil prices. Thus, Trump's administration may need to adjust its policies in relevant areas, especially after expected meetings between Trump and Putin, where some sanctions may likely be lifted. Until the U.S. clarifies its position, the market will likely prioritize the impact of sanctions on trading.
【Anchor】Regarding China-U.S. relations, some viewpoints suggest that in the early days of Trump's presidency, his policies will focus internally, leading to a brief improvement in China-U.S. relations. What are your thoughts on this?
In the initial stages of Trump's presidency, there may indeed be some short-term benefits for China-U.S. relations, but long-term uncertainties still remain. In the short term, Trump would be willing to improve the relationship with China during his campaign and early presidency. He believes that both sides can coexist peacefully and is open to cooperation on issues like fentanyl control. However, given the complex and dynamic nature of China-U.S. relations, which involve interests in numerous sensitive areas, I anticipate that Trump's policies may lead to new frictions and challenges in these sectors.
【Anchor】Additionally, last week, former World Bank Chief Economist and Senior Vice President, Justin Lin, mentioned at the Asian Financial Forum in Hong Kong, that China could surpass U.S. to become the world's largest economy around 2030 or before 2035. What is your take on this assertion, Ms Guo?
Justin Lin's assertion is quite optimistic and has a reasonable foundation. On the one hand, China has the advantage of latecomers, allowing it to learn from advanced technologies and to achieve industrial upgrades. On the other hand, in the new economy sector, China stands on the same starting line as developed countries and may even have a leading edge, given its complete industrial chains. However, there are also aspects of Lin's assertion that warrant consideration. China still lags behind the U.S. in key core technologies, such as semiconductors, and there is a relative shortage of high-end talents. Additionally, the aging population may lead to a future decline in the labor force and rising labor costs, which could affect economic vitality. At the same time, external challenges, including protectionist trade policies and geopolitical conflicts, may also hinder China's development. Nevertheless, if China can effectively address these external challenges, fully tap into domestic demand potential, and maintain a favorable international environment, becoming the world's largest economy could indeed be a natural outcome.
【Anchor】Meanwhile, outgoing President Biden stated last week, that even after four years of planning, China will never be able to surpass the U.S. How do you view the changes in the balance of power between China and the U.S. in the next 5-10 years, across various dimensions, including economic and political aspects, and what will their impacts be on the overall global landscape?
In the next five to ten years, the changes in comprehensive national power between China and the U.S. will become quite evident. Economically, growths in the U.S. is expected to slow, but its advantages in technology and finance will persist, although the gap between the U.S. and China in that area will continue to narrow. While China's economic growth is also slowing, it is expected to stabilize in the range of four to five percent, with room for development remaining. Politically, the ongoing internal struggles between the two parties in the U.S. will likely result in low decision-making efficiency, and after Trump takes office, U.S. foreign policies may lean more towards unilateralism. In contrast, China has consistently pursued a multilateralist foreign policy, increasing its influence in international relations and discourse. These changes will accelerate the world towards a multipolar direction, granting emerging countries more voices in international affairs. The international order may face reconstruction, and the competition between China and the U.S. will likely continue for a considerable period, leading to a complex geopolitical situation in regions like Asia-Pacific and the Middle East.
【Anchor】As for the impact of Trump's presidency on Hong Kong, there have been rumors that the pegged currency system might be abolished, and there even are voices in Hong Kong supporting this view. Recently, the Hong Kong Monetary Authority's Chief Executive, Eddie Yue, publicly expressed that there is no intention to change the pegged currency system. Mr. Song, given the high U.S. interest rates and a stronger dollar, how do you see the future of Hong Kong's pegged currency system going forward?
The fundamental reasons for not changing the pegged currency system mainly lie in political and historical aspects. Hong Kong has implemented its pegged currency to the U.S. dollar since 1983, and that system has played a significant role in stabilizing the Hong Kong dollar exchange rate, helping to maintain monetary stability during financial crises. The system has been in operation for over 40 years. The longevity alone demonstrates that the pegged currency system, as a pillar of stability for Hong Kong, has proven its effectiveness. Therefore, there is no reason to change a well-proven and functioning exchange rate system.
【Anchor】OK, thank you. That's all for this episode. Remember to follow us on YouTube or download our APP. I'm Yunfei Zhang, thanks for watching, and see you next time.
Anchor: Laura Cheung | Edited: Kelly Yang, Jerry Wang | Translate: Kato Ip | Proofread: Chris Liu
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