The world's only superpower is seeing a big change. It is very concerning, and it could raise volatility. The initial reaction to Brexit was extremely bumpy, but then things calmed down, at least for a while. Similarly, with a Trump presidency, investors may be headed for a prolonged period of shock management.
The institutional checks and balances on the US president – the president is not all powerful – may mean that global investors ultimately decide to keep their heads down, not overreact, and try to ride out the next four years. Apprehension over his protectionist agenda could lead to reduced global growth expectations – because the US could end up with an adverse mix of slower growth and marginally higher inflation. Bond markets globally are likely to see upward pressure on yields over the long term and a steepening of the yield curve. US protectionism would be very disruptive to investment flows and planning. We also should be really concerned about the risks to emerging markets and how they will behave, starting with Mexico.
Trump's trade threats may be no more than opening ploys to secure concessions. But the risks of miscalculation would be high and could lead to very damaging trade wars – which could have a negative impact across the US economy, not just limited to those areas directly linked to international trade. We are not aware of any country in history that ever isolated its way to prosperity. If we slow immigration of working-age adults, there is not enough growth in the rest of the US workforce or the overall productivity rate to grow the economy very fast. Most of our net population growth comes from immigration.
Some of Trump's campaign proposals – particularly big tax cuts, less regulation, and increased federal outlays for defence and infrastructure – could be positive, offering a marginal fiscal stimulus for the US economy in the short term. But that could lead to bigger deficits than otherwise and potentially higher rates if there is net economic strength.