Trump Tariff Policy Hits China and Mexico
India and Brazil Exploit the Gaps
The Wall Street Journal (WSJ) forecasted on the 13th (local time) that while the economies of China and Mexico in emerging markets will be hit by the return of President-elect Donald Trump to the White House, India and Brazil will benefit.
President-elect Trump has stated that he will impose a universal tariff of 10-20% on all imports and a 60% tariff on Chinese imports. He also plans to implement large-scale tax cuts. As a result, there are expectations that the value of the dollar will rise and inflation may become more persistent during the second Trump administration.
At a port in Yantai, Shandong Province, China, export trucks are waiting for transportation. Photo by AP Yonhap News
Some economists predict that Trump’s tariff policy, combined with tax cuts and other policies, will raise the prices of goods within the United States and set a lower bound for interest rate cuts by the Federal Reserve (Fed). This would maintain the strength of the dollar, causing mixed effects on emerging markets. Valentina Bruno, a finance professor at American University, said, "When the dollar is strong, financial conditions tighten, and funding for trade and exports becomes more complicated and costly."
Trump’s high-tariff policy will hit the main sources of revenue for export-dependent countries such as China, Mexico, and Vietnam. The country expected to suffer the most is China; if the 60% tariff policy is fully implemented, U.S. importers are likely to source goods from other countries, WSJ predicted.
Some expect that the U.S. tariff policy will lead Chinese export companies to sell cheaper goods in other countries, which could ease inflation in some countries and promote economic growth. Malcolm Dawson, head of emerging markets strategy at Global X ETF, said, "China still has a lot of manufacturing capacity and inventory, and will look for new buyers."
On the other hand, countries like India and Brazil are expected to benefit from Trump’s trade policies. India is projected to expand its market share in the U.S. market, which China will exit. Additionally, Indian Prime Minister Narendra Modi has a close relationship with President-elect Trump. Brazil is expected to be less affected by the U.S. tariff increases because its trade dependence is lower than other emerging markets. The Central Bank of Brazil has recently raised interest rates to curb rising inflation, and the influx of cheap imports from China would help control prices. At the same time, Brazil’s currency depreciation and stock price decline may make Brazil appear cheaper to investors holding dollars.
Dawson said, "India is the highlight of emerging markets. It is the main beneficiary of uncertainty surrounding China and diversification of supply outside China," adding, "I think Brazil is very undervalued."
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