On November 8th, 2016, Donald Trump has been elected the 45th President of the United States of America.

In his electoral program, the new White House tenant has promised economic stimuli to be implemented, among others, through:

  • Fiscal program which provides a substantial tax cut (i.e. 35%) for the middle class;
  • Public debt reduction;
  • Deregulation in several sectors (for example energy sector);
  • Abolition of Obama healthcare program (i.e. “Obama Care”);
  • More investments in strategic sectors (i.e. defense and infrastructure);
  • Trade agreements review, in a protectionist slant.


The overall economic approach of the “Tycoon” seems to be inflationary. As a consequence there could be an upward revision of interest rate expectations.

In an economic environment in which:

  • FED is raising interest rates
  • ECB, BOJ, BOE keep their interest rates low
  • Accordingly with the November 2016 OECD outlook, important emerging economies’ central banks are either likely to ease their monetary policies (i.e. Indonesia, Russia, Brazil, Turkey, South Africa) or unlikely to hike their interest rates (i.e. India).

For some emerging economies the recovery is still fragile, as shown by the following consensus forecasts:


Since 2011 the USD has been rallying against the other currencies, as shown by the Dollar Index.


The main effect of the electoral program policies may be an even stronger USD.

But… is this what the new president wants? In an interview to the Wall Street Journal on January 16th, 2017, Donald Trump talked about the recent levels of the American currency. He explained that such levels of the USD versus other main currencies are not what he wants for American companies. In fact, a strong domestic currency would have a negative impact on US export. Despite Trump’s will, the underlying economic factors may eventually strengthen the dollar.

So what about emerging economies? Typically a strong dollar, together with rising US interest rates, create some problems to the emerging markets. The main channel through which a stronger American currency impacts these economies is the USD denominated debts of domestic companies. These firms would pay more in terms of their currencies.

Beside this negative effect, a strong USD could have also a positive effect for these countries. In fact the US goods exported would cost relatively less to companies and people that pay with dollars. This should boost the export.

Furthermore, a stronger American economy, the European economies’ reflation and the current emerging economies recovery are all factors that could create a positive economic environment for the export from developing countries. This is true in a world where protectionist policies are not implemented. In fact, the establishment of such policies by the US government would (partially or totally) offset the positive effect that a stronger dollar would create on emerging countries.

To conclude, the key questions about the impact of Trump’s policies on dollar and emerging markets should be:

  • Whether and how Trump will succeed in implementing his fiscal expansive policy;
  • How the main central banks will change their monetary policy in the next years;
  • Whether and how Trump will succeed in restricting the global trade flows, through the implementation of protectionist policies.

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