Well, that was all very exciting wasn’t it?
After the frenzy that was the US election results, we can take a bit of a step back and look at the business reaction.
Donald Trump’s (re)ascension to the White House received a rapid response from financial markets – with the US dollar, cryptocurrencies and US stock markets all surging.
We’ve already looked at the biggest possible risk of a Trump presidency to Ireland’s economy – namely, that US multinationals stop shifting profits here, leading to a massive drop in our corporate tax take.
But that’s still just a hypothetical. Here’s a quick rundonw of how businesses reacted to yesterday’s dramatic election results.
The key takeaway here was the jump in the value of…well, everything.
US stocks hit record highs and the dollar surged following Donald Trump’s re-election as president.
The dollar gained almost 2% in value against many major currencies, while Bitcoin reached a new all-time high of nearly $76,000.
Investors were essentially betting on Trump following through on his stated priorities, which he has said will include tax cuts and increased tariffs.
Tariffs are essentially taxes which are placed on goods or services which are imported or exported by a country. It is expected that Trump could place tariffs on goods coming into the US economy in an effort to lower competition for American businesses from foreign companies.
The eurozone, Mexico and China have all been mentioned as potential targets for tariffs.
Investors anticipate that these moves could lead to higher US economic growth, but also a rise in inflation. US shoppers could end up paying higher prices, whether due to lower competition raising prices or importers passing along the cost of those higher taxes to consumers.
While this concern has frequently been raised by economists, it’s one Trump himself has dismissed, stating of his first term in the White House, starting in 2016: “I had tariffs, and yet I had no inflation”.
However, if higher inflation did materialise, it would reduce the ability of the US Federal Reserve to cut interest rates.
While this would keep borrowing costs higher for consumers, it would also likely keep the value of the dollar higher compared to other currencies.
This was why the value of the dollar rose.
The price of Bitcoin jumped by over 8% before falling back slightly as of the time of writing.
This is because Trump has come out with multiple pro-cryptocurrency statements in recent months, in particular talking up Bitcoin.
Stock markets also jumped. The S&P 500, which is a list of the 500 biggest companies operating in the US, rose by 2.5% – the biggest post-election day rise in its history.
Alongside his policies, which favour domestic growth, Trump is also viewed as supporting lower corporate tax rates and deregulation.
Investors think all of these are likely to further boost corporate profits – hence the market jump.
However, while US investors rejoiced, there were mixed feelings elsewhere.
The pan-European Stoxx 600 dipped by 0.6% yesterday, although it then rose by 0.4% today.
The choppy trading comes because investors think Trump’s re-election could be bad news for Europe, particularly for the likes of Germany. The country is heavily reliant on exports, which could take a hit if Trump follows through on his tariffs plan.
Asian stocks were also up and down, dropping yesterday before making somewhat of a comeback today. China trended more towards the latter, with the value of its yuan currency compared to the dollar dropping by as much as 0.9% at one point yesterday.
Figures closer to home also raised similar concerns. A report published yesterday by a think tank called the National Institute of Economic and Social Research painted a bleak picture for the UK economy.
Even without Trump’s tariff plan, it predicted that UK economic growth will range between a lacklustre 1% and 2% in the coming years.
However, the think tank warned that this already mediocre rate could be more than halved if Trump follows through with introducing more taxes for overseas products.
The Irish stock exchange followed the broad European trend, dropping yesterday before rising by 0.7% today as of the time of writing.
Domestic banks are viewed as being particularly vulnerable to any dialling back of US multinational activities, with shares in AIB and Bank of Ireland dropping by 1% and 5% respectively. Today, shares in AIB dipped further, while Bank of Ireland rebounded.
It perhaps reflects some of the uncertainty Irish investors and businesses feel about what Trump’s win means for them.
Given Ireland’s close trading ties with the US, talk of tariffs has created uneasiness. Dan O’Brien, chief economist at the Institute of European Affairs, said tariffs represent “one of the biggest near-term risks to the Irish and European economies”.
That was broadly in line with what comments from most other Irish economists and analysts.
The broad sentiment was that while it’s still early days, any talk of protectionism in the US should set off alarm bells in Ireland.
Of course, during Trump’s last presidency between 2016 and 2020, concerns about the same thing proved unfounded, as US multinationals grew their presence in Ireland and shifted increasing amounts of money here.
But the mood music has changed since then, and most observers feel that Ireland would do well to ride its luck a second time.
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