Aftermath of Presidential Debate... "Trump 2.0 is Coming" Global Alert [Global Focus]

Signs of Trump Returning to the White House Cause US Bond Yields to Surge
Busy Lobbying and Diplomatic Activities by NATO and Allies
"Trump's Second Term Would Be Terrible for Korea and Asia"

The aftermath of the U.S. presidential debate is intense. Public opinion, including the progressive camp, is pressuring President Joe Biden to resign. On the other hand, former President Donald Trump received a green light for his re-election path as the U.S. Supreme Court granted him certain immunity regarding allegations of overturning the election results. The U.S. bond market reflects concerns about an inflation rebound due to 'Trump risk.' NATO and other allied countries are preparing countermeasures against the Trump administration's pressure on defense cost-sharing and potential suspension of support for Ukraine. A tectonic shift is also anticipated in alliance relations in Asia, including South Korea and Japan. Experts foresee the NATO summit scheduled for the 9th as a turning point where the international community's 'Trump proof' measures will be concretized.

[Image source=Pixabay]

Fate Changed After TV Debate... Biden 'Red Light', Trump 'Green Light'

In the first TV debate ahead of the U.S. presidential election, President Biden suffered a crushing defeat, sparking calls for a change of the Democratic candidate within the progressive camp. The Washington Post (WP), classified as pro-Democratic, criticized, "The performance President Biden showed in the debate was stagnation, confusion, and caused anxiety within the Democratic Party." Thomas Friedman, a chief columnist for The New York Times (NYT), wrote, "I wept watching Biden's debate performance," adding, "He should maintain dignity and leave the stage."

Public opinion is also unfavorable. According to a poll conducted by CBS immediately after the presidential debate, 72% of respondents said President Biden should not run for re-election. In response, First Lady Jill Biden stated, "We will keep fighting," attempting to quell the candidate replacement movement. The Democratic leadership is reportedly considering an early nomination of Biden as the official Democratic presidential candidate.

While the Democratic camp is engulfed in turmoil, a green light has turned on for former President Trump's re-election path. The U.S. Supreme Court recognized partial immunity for Trump regarding allegations of attempting to overturn the election results, somewhat alleviating judicial risks. Previously, Trump was indicted for inciting supporters to storm Congress in 2021 after refusing to accept the election outcome.

Bond Yields Fluctuate... The Global Economy Dizzied by 'Trump Tantrum'

After the presidential debate ended as a decisive victory for former President Trump and the criminal trial schedule became uncertain, the bond market appeared to strongly reflect the possibility of a second Trump term. Before the debate, the 10-year U.S. Treasury yield was around 4.28%, but after the debate, it surged for three consecutive trading days to 4.49%, showing symptoms of a 'Trump tantrum.'

Wall Street diagnoses that the rapid rise in bond yields is driven by market concerns about an inflation rebound. If Trump raises tariffs as planned, import prices will increase, and anti-immigration policies reducing labor supply will push up labor costs, reigniting inflation. Particularly, Trump's signature policies of corporate and income tax cuts reduce tax revenue in the short term, and to compensate, additional government bonds issuance would further drive up interest rates. If inflation worsens, the Federal Reserve (Fed) may hesitate to lower benchmark interest rates, prolonging high interest rates. Global credit rating agency Moody's predicted that if Trump wins the election and the Republicans control Congress, U.S. inflation will rise from 3% in 2024 to 3.6% in 2025.

Javaz Matai, head of U.S. interest rate strategy at Citigroup Global Markets, said, "It seems former President Trump has gained meaningful upward momentum after the debate," adding, "Expectations of tax cuts and increased government bond supply under a Trump administration will likely continue to push Treasury yields higher starting this week." Andrew Brenner, global head of bonds at NatAlliance Securities, said, "We are seeing potential paths for higher long-term interest rates and a steeper yield curve," evaluating, "All are consequences of Trump 2.0."

Allies Shaken by 'America First' MAGA

The international community is also busy preparing countermeasures for Trump 2.0. NATO is pushing to establish a new command center in Wiesbaden, Germany, to oversee war material supply and military training for Ukraine. This operation, called NATO Security Assistance and Training for Ukraine (NSATU), has been conducted by U.S. forces since Russia's invasion of Ukraine in February 2022, but a multinational coalition of over 700 personnel from 32 countries will take over most of the mission. A civilian liaison will be dispatched to Kyiv, Ukraine's capital, to coordinate with NATO headquarters and the new command to promote modernization and non-military support for the Ukrainian military.

This measure is interpreted as a response to concerns that a second Trump administration might halt military support for Ukraine. Former President Trump has adopted an 'America First' policy under the slogan 'Make America Great Again (MAGA).' He has demanded that NATO and other allies allocate 2% of their GDP to defense spending and threatened to end America's role as the world's policeman if they fail to increase defense expenditures. In a recent presidential debate, he declared, "Before January 20, as president-elect, I will end the war between Putin and Zelensky." The Wall Street Journal (WSJ) diagnosed, "NATO's support for Ukraine is beginning to develop Trump-proof measures," adding, "After Trump complained about the money the U.S. spent on Ukraine during the TV debate, NATO was put on high alert."

European countries alarmed by Trump's '10% universal tariff' pledge are also actively lobbying. Earlier this year, Germany dispatched Michael Link, coordinator for transatlantic cooperation, as a special envoy to the U.S. Link engaged with Republican governors to conduct behind-the-scenes efforts to avoid punitive U.S. tariffs on European Union (EU) imports. Additionally, European diplomats stationed in Washington D.C. reportedly met with Trump associates at hotels, embassies, and think tanks to gather information on policy intentions and cabinet formation to report back to their home countries. Earlier, Japan attracted attention with its swift 'insurance diplomacy' strategy, including Prime Minister Fumio Kishida's summit with President Biden in April and former Prime Minister Taro Aso, the ruling party's second-in-command, meeting with former President Trump.

The Fate of the Korean Peninsula... "U.S. Troop Withdrawal → South Korea's Own Nuclear Armament"

South Korea is no exception to the Trump risk. Victor Cha, Korea Chair at the Center for Strategic and International Studies (CSIS), a U.S. think tank, wrote in Foreign Affairs that "Trump's second term will be even more dreadful for Asia policy than the first," arguing, "Trump's extreme diplomacy in the first term was offset by traditional Republican bureaucrats, but such effects cannot be expected in the second term." He pointed out that the robust Camp David Declaration among South Korea, the U.S., and Japan, including extended deterrence on the Korean Peninsula promoted by the Biden administration, could become ineffective under Trump 2.0.

Cha identified the Korean Peninsula as the region most fundamentally affected by Trump 2.0. He predicted, "Instead of 'fire and fury' in response to North Korea's provocations, former President Trump is likely to negotiate a halt to nuclear tests with sanctions relief as a 'carrot.'" Subsequently, it is expected to lead to a declaration of victory for ending the North Korean nuclear threat without armed conflict, followed by steps such as the withdrawal of U.S. troops stationed in South Korea. He added, "This scenario will almost certainly lead to South Korea's own nuclear armament."

Experts' attention is focused on the NATO summit scheduled for the 9th. With Indo-Pacific allies such as South Korea, Japan, Australia, and New Zealand?who have high political and military dependence on the U.S.?officially invited, it is analyzed as an opportunity for allies sharing Trump 2.0 risks to strengthen their relationships. Evelyn Parkas, director at the McCain Institute at Arizona State University, evaluated the attendance of these four countries at the NATO summit as "an attempt to ensure that national relations grow and democratic countries continue to support each other even without the U.S."