Why You're Wrong About the Trump Stock Market Turmoil

Why You're Wrong About the Trump Stock Market Turmoil

Why you should care

Because this is actually where global stock markets could go before you know it.

On a quiet corner in Charlotte, North Carolina, the Trumpening is happening. A room of normally polite churchgoers all whoop and holler as their dark-horse candidate, Donald Trump, takes the crown in this year’s breathtaking election. “He’s a businessman,” not a “snaky” politician, says Pastor Thomas Rogers, brandishing his “Make America Great Again” pin. The church leader has investments in infrastructure projects around West Angola and the United Kingdom. But little does he know, the results have quietly wreaked havoc on stock markets around the world.

As the world wakes up to a Donald Trump presidency in the United States, many folks are seeing that stock markets don’t like surprises. Markets around the world took a beating as news of Trump’s victory passed through the press: Asia’s markets in Hong Kong and Japan closed down several percentage points, and a whopping $26 billion in value was wiped off Australia’s exchanges before prices rebounded somewhat. Meanwhile, the Dow Futures fell more than 800 points, and the Mexican peso plunged over 10 percent — to an all-time low.

But hold your horses, everyone. This is not Black Friday all over again. At least not yet, says Steve Hanke, an applied economist at Johns Hopkins University. Along with other experts, Hanke figures a large part of these attention-grabbing headlines are “knee-jerk” reactions to an electoral surprise rather than serious structural threats to the global economy. While President-elect Trump’s rhetoric on trade certainly creates a lot of uncertainty around the world, it’s not time to run for the hills just yet, some say. Markets are more like rubber, notes Hanke: “They’ll always revert back to fundamentals.”

If Brexit’s anything to go by, stock markets around the world might well be in turmoil for the next few days — but not forever. After the U.K.’s surprise vote to leave the European Union in June, stocks in the country had their worst fall since the 2008 financial crisis, plus shares of companies around the world were hit hard. Within weeks, though, London’s FTSE stock exchange had recovered its losses as panic allayed to mere uncertainty. Investor confidence is still low, and so growth forecasts have been cut, but it looks like the economy has avoided a much-feared recession. The pound sterling has readjusted to a likely permanent lower level, raising inflation fears for next year. Yet the economy hasn’t fallen apart; people are still going to work as they did before.

A similar story likely lies in store for Trump’s America. As dawn breaks, the American economy will function on Wednesday largely as it did on Monday. The North American Free Trade Agreement, the Trans-Pacific Partnership and other trade deals will still be intact, and they likely will be for a while — even into a Trump administration. As the dollar slides, a cheaper currency may actually benefit American manufacturers, and a capital flight from the U.S. may not sound all that worrying when the country is, after all, the largest investor in itself anyway.

Of course, for many, last night’s vote brought some serious economic concerns to the fore. The forces behind both Trump’s rise and the Brexit vote in the U.K. demonstrate that the worldwide economic consensus of the past several decades — that prosperity is only advanced by globalization — has been ultimately rejected by those it left behind. There is a huge amount of uncertainty about how countries around the world can adjust to an increasingly closed global economy. The economy of Mexico, for example, is excessively reliant on its trade relations with the United States, hence the peso’s rocky evening. And we recently learned that Mexican officials had an economic “contingency plan” ready for the potential of a Trump victory; time will tell how it fares.

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