Donald Trump is slated to win the US presidential race, in a remarkable turnaround in his fortunes. Given the nature of his departure four years ago and numerous legal travails since, the victory is all the more striking. Going by popular votes, the US may be a divided nation, but the electoral college math appears to have shifted decisively toward Republicans in this round.

Data available so far suggest the Senate moving toward a Republican majority, which would assist Trump with official nominations. Even if the House does not stay Republican, stars are aligning for a rather comfortable space to govern for President-elect Trump.

The so-called Trump trades have roared today. Stock futures (particularly Tesla) are up, bond market is down, USD has strengthened, and Bitcoin has rallied. In the coming days, we will see more pricing toward a world characterised by higher US tariffs and other protectionists measures, a wider range of pressures on China and on those who do business with China. Coming into this election, the odds were even, so the outcome is not shocking, but given that it is Trump, there is an element of heightened concerns in Asia.

On USD and rates, the markets will price in a stronger dollar as an offset against higher tariffs. Both the inflationary implication of tariffs and bond issuance implication from large tax cuts would drive up yields and constrain the Fed’s room for rate cuts.  

Geopolitical fragmentation would deepen, exporters to the US will see margin pressure, China-US tension will likely exacerbate, EM currencies will face depreciation pressure, and their central banks will see room for rate cuts narrowing somewhat.

But the world dealt with Trump before, and it will deal with him again. Trump’s transactional nature of doing business always leaves room for some deal, even if that means further erosion of a global rules-based order. We expect to see countries in Europe attempt to deflect his wrath by pushing up domestic military spending. Asian countries will not need to go down that route, but their companies will face increasing scrutiny in their dealings with China. Chinese companies will see more of what they have seen in the past decade, more restriction on tech access and higher cost of exporting.

From payments and settlements to custody of foreign exchange reserves, nations would have to thread a fine line between maintaining their inclination to hold USD assets and getting in the sightline of US sanctions. The ongoing trend of holding more non-USD assets, bringing some central bank gold reserves back to domestic jurisdiction from the West, and using non-Swift payment rails will take deeper roots during Trump 2.0, in our view. The USD is rallying presently, but its medium-term outlook is poor, in our view.

What Trump 2.0 means for the US is relatively clear. His stance on taxes, immigration, public spending, cryptos, and federal bureaucracy are well known, and given his executive power and an enabling Senate, he would be able to enact lasting changes in all these areas. Expect more tax cuts, headline grabbing measures to deal with undocumented migrants, wide berth for cryptos, and sweeping changes in the top layers of US bureaucracy.

Trump would want an economy supported by low interest rates, but his fiscal policy ideas would get in the way of the Fed cutting by a lot, in our view. The Fed may cut a few times in 2025, but the policy easing picture could get considerably muddy if growth remains strong and inflation begins to rebound. A clash between the Fed and Trump could then ensue, causing consternation among investors. We are quite concerned about this scenario.

The US came into these elections in a cyclical sweet spot, with growth at well over 2% and inflation well below 3%. Regardless of the election outcome, that cyclical comfort would have lasted, a view we continue to hold now that matters have tilted toward Trump. The medium-term challenges of high fiscal debt and inflationary risks around tariffs and tightened immigration, will need to be dealt with during this presidential term. If the president chooses not to do so, the bond market may well force his hand.

Finally, the game plan for Asia. Tariffs are an unambiguous negative for the region, but Asia’s strong ties with the US and China would survive Trump, we’re sure. The region’s openness to trade and commerce makes it more attractive to investors, especially as the contrast with an inward-looking West becomes stark. Exports will face more scrutiny, there will more regulatory headaches, but the region’s scale, excellence in manufacturing and logistics, strong corporate and public sector balance sheets will hold them in good stead during Trump 2.0. China would likely push for more stimulus to boost domestic demand. This election marks a firm rightward shift of the US; Asia has to learn to live with it.


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