With the inauguration of Trump 2.0, the global landscape, especially in terms of trade, growth, and geopolitical risks, is poised for significant shifts. Investors in emerging markets now face the complex task of navigating both global macroeconomic forces and domestic challenges, as Trump’s unpredictable policies cast a long shadow over the economic future.
The Unpredictability of Trump 2.0
One of the key features of Donald Trump’s leadership is his unpredictability, according to Principal Finisterre Chief Investment Officer Damien Buchet. His administration's decisions are often difficult to anticipate, and this remains a central concern for emerging markets. The actions he takes on trade, tariffs, and international relations could dramatically reshape the economic environment in 2025.
Countries heavily involved in trade with the U.S. — such as China, Mexico, Southeast Asia, and the European Union — are likely to face the most immediate impact.
“What will shape the outcome for EMD in 2025 will be a blend of global macro issues—chiefly the impact of “Trumponomics” on the rest of the world in terms of trade, growth, and geopolitical risks, as well as EM home-grown considerations focusing on the growth/inflation trade-off and its impact on fiscal and monetary credibility,” Mr Buchet said.
“The main thing we know about Mr. Trump is that you can’t know in advance what he will or won’t do. His unpredictability is a trademark, which perhaps plays in his favour. China, Mexico, South-East Asia, and the EU obviously look most at risk given their large share in U.S. imports and could be the first hit by tariffs after the January 20 Trump inauguration.”
With Trump’s history of using tariffs as a bargaining tool, these regions, which make up a large portion of U.S. imports, are at high risk of facing new trade barriers. This unpredictability could create turbulence for emerging market economies that are dependent on stable U.S. trade relationships.
Geopolitical shifts and emerging markets
Beyond the economic concerns, the geopolitical implications of Trump 2.0 are also a major factor for emerging markets. While Trump has at times championed an isolationist stance, it’s clear that the new administration will remain deeply involved in global affairs, particularly in areas where U.S. interests are directly at stake, Mr Buchet noted.
The role of the International Monetary Fund (IMF) will likely remain crucial for several frontier markets facing refinancing pressures.
“We do expect the International Monetary Fund to remain very engaged in supporting a number of frontier countries under refinancing stress but wonder if future support packages may become a bit more selective or conditional on political alignment with the West,” he added.
Trade, inflation, and fiscal challenges
The impact of Trump’s economic policies on emerging markets will be profound. Central to the discussion is the ongoing tension between growth and inflation. As the U.S. pursues policies that may increase tariffs, tighten immigration, and push for tax cuts, emerging markets will feel the ripple effects.
A rise in tariffs could lead to higher consumer prices and increased costs for companies reliant on imported goods, with a potential spillover effect on global inflation, according to Mr Buchet.
Additionally, Trump’s approach to immigration — which played a significant role in the post-pandemic normalisation of the U.S. job market — may create further inflationary pressures. The combination of reduced immigration, rising tariffs, and possible tax cuts that aren’t offset by cuts in public sector spending could result in a significant uptick in U.S. debt levels. If the U.S. faces increased borrowing needs, this could create further instability in global markets, particularly in the currency and bond markets, with the U.S. dollar and U.S. interest rates playing a dominant role in 2025.
“Most risk assets, including EM debt, will remain under the influence of U.S. rates and the USD in 2025. Questions abound about the likely inflationary risks of “Trumponomics”,” he said.
“An economy closing the door on immigration (which was the key factor behind the recent post-pandemic U.S. job market normalisation), the impact of tariffs on consumer prices and corporates import costs, and the risk that planned tax cuts will not be compensated enough by efforts to rein in public sector expenditures, resulting in debt slippage and surging borrowing needs by the U.S.”
