The return of Donald Trump to the White House following his defeat of the Democratic nominee and Vice President Kamala Harris could reshape global trade dynamics, with significant implications for markets worldwide, according to Jesmond Mizzi, Managing Director of Jesmond Mizzi Financial Advisors. Mr Mizzi anticipates heightened volatility in global capital markets as trade tensions with China and Europe may re-emerge, should Trump pursue familiar protectionist measures.

“Trump’s ‘America First’ agenda previously targeted reducing the US trade deficit by reshoring manufacturing jobs, leading to strained relations with key trade partners, especially China,” Mr Mizzi observed. During his previous term, Trump’s administration imposed tariffs on hundreds of billions of dollars’ worth of Chinese goods, ranging from technology to consumer products, sparking a trade war. The threat of renewed tariffs remains credible, as Trump has indicated his willingness to escalate measures should he perceive China’s trade practices as unfair or harmful to American interests. Such moves could disrupt global supply chains, increase costs for businesses, and impact consumer prices, driving up inflationary pressures in the US and beyond.

The ripple effects of heightened US-China tensions would be felt in global markets, Mr Mizzi warned, with investors reacting to heightened uncertainty and economic slowdowns. “Supply chain disruptions and retaliatory measures from China could deter cross-border investment, impact corporate earnings, and create a risk-off sentiment in markets, particularly in Asia and the US,” he said.

In Europe, Mr Mizzi highlighted the potential for renewed disputes over trade tariffs. Trump has previously imposed levies on European steel, aluminium, and other goods. “Renewed trade disputes could weaken Europe’s economic growth, further straining relations with the US and reducing demand for American exports,” he explained.

While US equities initially rallied , driven by gains among banks and sectors less exposed to trade, Mr Mizzi cautioned that the manufacturing, technology, and automotive sectors could face increased market volatility. “US companies with a strong domestic focus may benefit from protectionist policies, while as the probability of a Trump presidential win increased, small-cap stocks outpaced broader market indices due to their reduced international exposure,” he added.

Tax cuts and regulatory rollbacks: A double-edged sword for markets

Trump’s potential economic policies would likely focus on cutting corporate taxes and reducing regulatory burdens, as seen during his previous term. “His tax policies aimed at boosting domestic investment and growth by reducing corporate taxes,” Mr Mizzi said, referring to the Tax Cuts and Jobs Act of 2017, which lowered the corporate tax rate from 35 per cent to 21 per cent. “Lower taxes tend to drive business activity and corporate earnings higher, offering short-term gains for markets.”

However, Mr Mizzi warned that Trump’s deregulation agenda, especially around environmental and labour policies, presents risks. While sectors like energy could benefit – evidenced by the four per cent surge in energy equities following Trump’s victory over Harris- “deregulation can raise concerns about long-term sustainability and ethical governance, potentially deterring ESG-focused investment,” he explained.

The impact on global investment flows could be significant, with foreign capital seeking higher returns in a deregulated US market. “Investors should remain vigilant for long-term debt and inflation risks,” Mr Mizzi cautioned.

Monetary and fiscal policy outlook: A source of potential market volatility

Although a US president does not directly dictate Federal Reserve (FED) policy, Trump has historically pressured the FED to adopt a more dovish stance. “A more accommodative approach, with lower rates, could boost market liquidity and investment activity,” Mr Mizzi explained. However, he cautioned that aggressive fiscal expansion without offsetting revenue sources could increase the US deficit, heightening inflationary risks.

“Higher inflation and debt could undermine market confidence, making US assets more attractive but riskier in the long term,” he said. For European and Maltese investors, these dynamics signal opportunities but also potential volatility.

Interest rates, inflation, and a complex global market landscape

Trump’s fiscal expansion plans, centred on tax cuts and spending, could drive up inflation, forcing the FED to raise interest rates. “Higher rates would make USD-denominated assets more appealing, potentially attracting investment but also driving up borrowing costs and the value of the dollar,” Mr Mizzi noted. This scenario could challenge emerging markets reliant on dollar-denominated debt, increasing repayment costs and exacerbating trade imbalances.

“In a globally connected economy, higher US interest rates and a strong dollar would affect European and Asian markets, making trade more expensive and eroding competitiveness,” Mr Mizzi concluded. The potential for divergent central bank policies, as economies respond to US fiscal changes, underscores the complexity ahead for global investors.

“Markets adapt and seek opportunities in the face of change, and investor resilience will be key in navigating the potential shifts of a Trump presidency,” he said.

This interview does not intend to give investment advice and the contents therein should not be construed as such. Jesmond Mizzi Financial Advisors Ltd (JMFA) is licensed to conduct investment services under the Investment Services Act by the MFSA. Investors should remember that past performance is no guide to future performance. For further information contact JMFA of 67, Level 3, South Street, Valletta, on Tel: 21224410, or email [email protected]