(by Martin Pioch)
The recent election of Donald Trump as the next US President has two immediate effects on the BRICS and other emerging economies: the chance or hope for a restart of their relations with the US on the one hand, but also economic uncertainty and possible trade restrictions on the other. President Putin expressed the hope to end the crisis in the Russian-American relations, and President Modi used Twitter to show his hopes to bring US-Indian bilateral ties to a new high. While South African President Zuma sent a rather neutral message of congratulations, Chinese and Brazilian officials also showed concerns. The government in Brazil called on Trump not to resort to protectionism, due to fears that the new US President might end trade liberalization, which would negatively affect the current Brazilian attempts to boost trade with the US. China is also concerned about the ‘irrational type’ of President Trump as Finance Minister Lou Jiwei put it, mentioning several times new and higher tariffs on Chinese products.
In terms of economic consequences, we can already see some developments in the markets, indicating an uncertain future. While immediately many indices fell — such as the Nikkei in Japan, the DAX in Germany, the Shanghai Composite in China, the Sensex in India, the RTS in Russia, and also the Dow Jones in the USA — by the weekend these shocks had turned into positive developments. This is also illustrated in the fall on the five-month low in gold prices after the victory of Trump, which has led — against expectations — to an increase in riskier investment and dampening demand for haven assets.
The recent fall in oil prices can especially be seen as complicated for the resource-exporting BRICS. Trump has several times expressed a desire to increase oil and gas production in the US and to abolish the export ban on those resources, which might further decrease the oil price, which already fell in the first three days after the election by around 3%. This, however, is not positive news for Russia and Brazil. In the Russian case, it is also not clear if Trump will abolish the current sanctions, since the US Senate and House of Representatives would not favour a quick curtailment of the regime, even under a Republican majority.
Therefore, despite some emerging economies’ emphasis on politics, BRICS economies may not benefit from this election if in the long term the Trump presidency leads to falling oil prices and growing trade restrictions vis-a-vis the US market. Two phrases were important in Donald Trump’s victory speech in this regard. Firstly, he stated that “we will deal fairly with everyone,” and secondly that “we will always put America’s interest first.” This rhetoric points in two contrary directions – and the BRICS will have to wait until it becomes clear which kind of politics Trump will actually implement.