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Trade policy will be central to Trump’s second term

Many of the US president’s fresh executive orders will have substantial ramifications, including in the Gulf

Brian Moynihan, CEO of Bank of America, said that banks are ready to 'come in hard' on cryptocurrencies if regulations allow Brendan McDermid/Reuters
Brian Moynihan, CEO of Bank of America, right, said that banks are ready to 'come in hard' on cryptocurrencies if regulations allow

In many ways, 2025 begins now. Not only because the Chinese lunar year of the snake starts on Wednesday. But more because of the second inauguration last week of US President Donald Trump – marked by a bombardment of executive orders, rhetoric, cajolement and threats across a wide range of domestic and foreign policy issues.

While many will see this burst of activity and noise as a signal of the president’s intention to wield power more decisively and radically than ever before, Trump has billed his return to the White House as the “return of common sense”.  

Whatever the reality, many recent norms developed in the US and worldwide are set to be challenged socially and politically, as well as economically, where the rules-based trading system is likely to come up against deal-making and more transactional politics.    

Many of the executive orders Trump signed, as well as his other statements and promises, could have substantial economic and financial market ramifications, including here in the Gulf. 

Domestically, the prospect of deregulation and lower corporate taxes was welcomed and spurred the stock market throughout Trump’s first week in office. The president ordered the government to “deliver emergency price relief” to make housing more affordable and address living expenses by targeting health care costs and climate policies. 

While this blusterous talk may look bullish, the approach may set him up for a clash with the Fed

He also used his virtual Davos speech to urge Opec producers to bring down the cost of oil, claiming that it would help end the war in Ukraine and lower inflation, enabling more interest rate cuts, which he wants to come down “a lot”. 

While this blusterous talk may look bullish for the markets at face value, the approach may set him up for a clash with the Fed down the road. 

Trade policy is likely to pose the most significant risk to inflation and interest rates. While specific policy steps remain unclear, the White House has issued a directive for federal departments to evaluate the causes of US trade deficits, with a view towards implementing tariffs.

The US-Mexico-Canada Agreement, signed during Trump’s first administration, is up for review. Trump has suggested imposing 25 percent tariffs on Canada and Mexico – accounting for 30 percent of US imports – by February 1.

Although Trump has reportedly sought China’s help in resolving the Ukraine war, he continues to discuss a 10 percent tariff on Chinese goods, a reduction from the 60 percent proposed during his campaign. He has also warned of punitive measures against the EU, leaving all options on the table.

While markets may still anticipate interest rate cuts this year, they could shift to expecting tighter policies if tariff measures gain momentum. This may explain why Trump is treading more cautiously on trade policy.

In terms of energy policy and pressuring Opec countries to produce more oil, Trump declared a “national energy emergency” that will enable the development of domestic energy resources and reduce the emphasis on renewables by taking the US out of the 2015 Paris Climate Agreement.  

The US will also immediately pause all funding related to the Inflation Reduction Act, eliminate the electric vehicle mandate and restart approvals for LNG exports. 

Digital assets were already receiving a boost before the inauguration, and with Trump now establishing a working group to draft new regulations, this seems likely to continue. 

The Securities and Exchange Commission (SEC) has taken a significant step by rescinding an accounting rule that required banks to classify cryptocurrencies as liabilities on their balance sheets. This change prompted Bank of America CEO Brian Moynihan to declare that banks are ready to “come in hard” on cryptocurrencies.

Additionally, a $500 billion investment in an AI joint venture, including collaboration with SoftBank, the Japanese tech investor, highlights the White House’s focus on emerging technologies.

The economies of the GCC do not appear to be specific targets of the new Trump administration beyond the message to produce more oil, but they would be impacted by a universal trade tariff should it be announced, mostly due to their global trade links, which would be likely to get caught up in second-round effects. 

The prospect of additional US energy resources entering global supply also represents a risk for regional economies chasing market share. 

Any significant negative effect on oil prices could also affect regional fiscal policies if sustained over time, requiring governments to stay vigilant if not for any immediate negative impact from Trump’s policies, but rather for the unanticipated consequences.

Tim Fox is partner, policy and economics, Capital Gate Advisors