Turkish analysts give mixed views on Trump policy

By Bahattin Gonultas and Muhammed Ali Gurtas

ANKARA

President-elect Donald Trump’s future policy will deliver a boost to the world’s largest economy, but his promises over trade barriers could be the largest risk to global trade in 2017, analysts told Anadolu Agency on Monday.

“The risk of trade wars increased as Trump named [Peter] Navarro, known for his anti-China and NAFTA views, to the top of the trade team,” said Sant Manukyan, head of the Investment International Markets Department with Turkey’s biggest private lender, Is Bank.

Trump has previously described China as a “currency manipulator”. He also has vowed to apply tariffs to imports from China and Mexico as high as 45 percent.

Navarro (67), a professor at the University of California and the author of Death by China, served Trump’s campaign during the U.S. presidential election.

A recent editorial published in China Daily, a Chinese state-run newspaper, said Trump’s nomination of Navarro to head a newly established White House National Trade Council “is real cause for concern”.

“On top of this, the risk of a trade war seems to have increased, if you consider the Republicans’ tax regulations that are not in line with World Trade Organization rules,” Manukyan added.

“One of the biggest risks for next year is also that a sudden decision by China to devaluate its currency, the yuan,” said Manukyan.

Commenting on European economies, Manukyan said: “High borrowing costs in countries such as Italy and Spain, could resurrect economic crisis fears in the eurozone. Therefore, there would be a risk of global bond movement in 2017, as in 1994.”

– China, Japan to look for new trade partners

Altay Atli, a specialist at Sabanci University’s Policy Center told Anadolu Agency: “If President-elect Donald Trump implements the protectionist policies that he has committed [to] early, it would cause confidence problems among countries like Japan and China, and create an uncertain environment.”

Even with a 180-degree turn in Trump’s policies, Atli says major economies in Asia will be more cautious about relations with the U.S., adding: “These countries will not want to be overly dependent on the U.S., so they will go to new partners.”

Atli also stated China had taken some measures to prevent an “economic bubble”, and said:

“But these are short-term measures, and the main issue is how far the Chinese government can carry out structural reforms. In this sense, the global markets expect to see tangible and considerable steps by China in 2017.”

– U.S. protectionism

Bora Tamer Yilmaz, economist at Turkey’s state-run leading lender Ziraat Bank said: “Rising U.S. yields due to incoming President Donald Trump’s assumed fiscal policies can constitute the biggest risk for emerging markets (EMs).

“A worsening budget balance in the U.S. may push market rates higher, ensuing higher risk premium for risk assets and EMs. Also, a fiscal stimulus may end up with higher levels of inflation in the U.S., forcing the Fed to hike rates faster than anticipated. In this case, investors may again demand a higher risk premium for EM assets,” said Yilmaz.

Commenting on Trump’s trade policies, Yilmaz said: “China and Mexico are the two potential countries that may get hurt by possible trade barriers.”

“We don’t expect a radical shift by Trump on his trade policies because such measures may help China increase its own presence in Asia via their ‘One Road, One Belt’ initiative,” he added.

“There are many avenues for Trump to engage in a progressive relationship with China while protecting U.S. jobs. On the other hand, such policies may have a limited impact on Turkey since Turkey belongs to the European supply chain,” he added.

Yilmaz stressed that Brexit should not be taken as the end of the European project, and populist parties would not be able to reach power.

“Populism is not a new issue in the European history and Europeans know well that there is no turning back if they vote for populism,” he said.

– Oil prices

Regarding the substantial share of energy prices in the consumer basket, Yilmaz warned: “For Turkey, a rebound in oil prices could constitute a detrimental shock in terms of higher inflation.”

“[The] trade deficit may also widen due to the energy bill. We think that prices hovering about $50 per barrel should not worsen Turkish macro drivers. However, if we see prices moving towards the $60 range then we can see higher inflation rates, combined with wider trade deficits,” he added.


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