As far as future policy under the Trump administration was concerned, the president’s speech was much ado about nothing.
Beneath Trump’s red, white and blue oration, there were a few references to America’s high corporate tax rates, “crumbling” infrastructure and “job-crushing regulations.”
“It was telling that he made no specific policy points with regard to trade and discussed ‘levelling the playing field’ only in the context of corporate tax reform,” said David Page, senior economist at AXA Investment Managers.
And this concept of a “level playing field” was only discussed by Trump in relation to American companies and workers, much in keeping with his ‘America First’ mantra.
In fact, the 45th president decried the double standards involved in America’s trade deals with other nations.
“Currently, when we ship products out of America, many other countries make us pay very high tariffs and taxes — but when foreign companies ship their products into America, we charge them almost nothing.”
That’s why it might not be so farfetched to assume that “this discussion alongside tax reform suggests that the proposed border tax adjustability as part of a fundamental reform of US corporate tax reform has not been ruled out,” said Page.
And while Trump seemed to soften his stance on the North Atlantic Treaty Organization, whose constituents he has repeatedly lambasted for failing to spend 2% of GDP on defence, he stressed that they need to “pay their fair share of the cost.”
Since the US election, global stock markets have rallied alongside indices in the US and broken new heights. From December, the Euro Stoxx 50 has risen by nearly 12% to date, while the FTSE 100 has shot up over 9% in the same timeframe.
But the question still weighing heavily on investors’ minds is whether President Trump’s border tax control could reverse these gains.
“Obviously, Trump’s border tax is not a positive for European exporters,” said Alliance Bernstein chief investment officer of European equities, Tawhid Ali.
“Having said that, it really will depend on the policy details,” he added.
“What makes this complicated is it is virtually impossible to predict the second, third, fourth and fifth order effects of his proposals. That is why we have done our best to neutralise the portfolio to unintended macro consequences. Historically, we have done that by balancing importers and exporters in our portfolio so that we are not overly reliant on companies that export goods from Europe to the US.”