By any standard, last month was highly eventful and even turbulent. The main event was undeniably the US presidential election, which resulted not only in a convincing win of the electorate and the popular vote for Donald Trump but also brought majorities in the House of Representatives and the Senate for the Republicans. The Supreme Court, the highly politicized judiciary had been under Republican control since the first Trump presidency, therefore it is only reasonable to conclude that the incoming administration was handed an enviably strong mandate, almost a card blanche to shape domestic and international politics and the economy. It is against this backdrop that all other developments, namely the wars in the Middle East and Ukraine must be examined.

The four main pillars of the Trump policies are deregulations, tax cuts, deportations of illegal immigrants, and import tariffs – all in the name of making America great again. These policies will be executed by those coming from the corporate sector and who meaningfully donated to Donald Trump’s campaign (plutocracy). In some instances, they have no experience in administering a country (kakistocracy). It will inevitably lead to severe conflicts of interest (crony capitalism). The deregulatory framework will affect several sectors of the economy, from energy to finance and to cryptocurrencies. The considerably reduced compliance will support corporate America the same way as the proposed cut in corporate tax from 21% to 15% but will increase inequality. It provides an initial boost to the US stock markets. The S&P 500 index settled at a record high on Friday and returned 5.73% to investors in November, versus a rally of 1.42% in the Shanghai Composite Index or 2.18% in the FTSE-100 Index. It is ambiguous how tax cuts will be financed. As for deportation, if Brexit taught us anything, it was that emigrating workforce leads to a tight labour market and rising wages, also triggering inflationary effects.

In a Trump world protecting the US economy is only imaginable through bullying and coercive foreign economic policies or tariffs, which are taxes, ultimately paid by the consumer. Evidence shows that the Biden administration’s IRA and CHIPS Act are persuasive enough to protect and even better the domestic economy. It led to prosperity without unnecessarily raising trade barriers. However, its impacts are being casually and vainly ignored. Tariffs can be deployed to increase revenues, which will be a must for the incoming administration given the proposed tax cuts. It can be used to gain political leverage, which is probably the case regarding the US neighbours of Canada and Mexico and will probably turn out to be a negotiating tool than anything else. These duties on imports are also meant to protect domestic industries and prioritize domestic manufacturing against imports. The US's biggest trading partners, the EU and China are in the crosshair of the new government. Judging by the latest reactions, the EU will be malleable and pragmatic and, as suggested by the president of the ECB, Christine Lagarde will increase efforts to narrow the US trade deficit by purchasing US products, such as LNG or defence goods.
 

China is a whole different story. The US share of global growth has fallen by 50% since WW II and it does not take an academic intellect to figure out which country emerged as a fierce competitor. There is a genuine war to attain global dominance on the economic (and political and ideological) front and this war takes the shape of sanctions as opposed to competitive co-operation. Tariffs will most plausibly be imposed on Chinese imports. It is partly this threat that incentivized Chinese manufacturers to increase activity last month. Its negative impacts will be felt by the lower-income US consumers who are disproportionately affected by it and by US manufacturers whose inputs are secured from overseas. In the medium term, it will have an inflationary effect exacerbated by the wage increase precipitated by the pledged deportation of undocumented migrants, a salient part of the US workforce.
 

The US election at the beginning of last month has also caused potentially far-reaching changes in the geopolitical arena. Israeli strikes against Lebanon initially intensified but ultimately the US managed to broker a ceasefire agreement, however fragile, between the Jewish state and Hezbollah. It is an unconditionally welcome development but one must not lose sight of the ultimate Israeli goal: to obliterate Hamas and free the remaining Jewish hostages. The conflict will rage on and the second Trump administration will remain a staunch ally of Israel. Tightening the sanction screw on Iran simply cannot be ruled out.

The Russia-Ukraine conflict has also taken a considerable turn and only history will judge whether for the better or the worse. The US, together with its ally, the UK, allowed Ukraine to use their missiles to strike deep into Russian territories. In case of a Harris win such a move would have been unimaginable. Russian retaliatory measures included the use of hypersonic missiles that targeted critical Ukrainian energy infrastructure. Donald Trump has pledged to solve the Ukrainian conflict in 24 hours. He appointed a Ukraine hawk, Marco Rubio, to the position of Secretary of State, who voted against a $6 billion Ukrainian military aid. It seems increasingly possible that the US will put pressure on Ukraine to accept territorial losses in return for a peace agreement. If it comes with security guarantees and the promise of joining the EU and NATO further down the line, it might just be acceptable for Ukraine as it will appear as the least-worst of the possibilities. Without such guarantees, it is a complete capitulation, which would only further embolden Vladimir Putin – and Xi Jinping for that reason, who does not take his eyes off Taiwan. As buoyant equities and the unpredictability surrounding both the Near East and Ukraine are unable to perk up oil prices, it is a challenge to contemplate what needs to happen to provide a proper boost for our market. The international crude oil benchmarks settled lower month-on-month, ignoring the upbeat mood in stocks, the cold spell in the northern hemisphere and the expectations of OPEC+ delaying once more its plan to increase supply. The sentiment last month was the polar opposite of the one observed in other risk assets.
 

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