'Trump Trade': What is it and how could it shape the future of markets and cryptos?

By Ovunc Kutlu

ISTANBUL (AA) — With former US President Donald Trump running for office in the November elections, the term "Trump Trade" has once again become a widely recognized concept in financial markets.

It involves any type of investment in financial markets that is based on the likelihood of Trump winning back the White House and the repercussions it might have on US economic, trade, political, and social policies.

After Trump's victory in the 2016 presidential election, major stock exchanges in the US and the value of the dollar surged with Trump's promises to cut corporate taxes, ease financial regulations, and adopt more strict and protectionist trade policies.

This time, investors are betting on the same expectations and some more.

"In recent days, the phenomenon known as the 'Trump Trade' has gained new momentum in financial markets, driven by recent political events that have once again placed former President Donald Trump at center stage," Quasar Elizundia, a research strategist at Australia-based online Forex and CFD broker firm Pepperstone, told Anadolu.

- Characteristics

Elizundia said Trump Trade is characterized by several of the former president's distinctive economic policies and positions that have had profound effects on financial markets, such as reduced immigration and higher labor costs, fiscal policy with deficits and higher costs of money, and tariffs and higher import costs.

"The Trump administration was known for its tough stance on immigration. The reduction of legal and illegal immigration tends to decrease the supply of cheap labor, which can lead to increased labor costs. This, in turn, could create inflationary pressure as companies try to pass these additional costs on to consumers," he said.

"Another characteristic of the Trump Trade is an expansive fiscal policy resulting in larger budget deficits. The combination of tax cuts and increased government spending, without a corresponding increase in revenue, tends to increase government borrowing. This higher borrowing can put upward pressure on interest rates, increasing the cost of money and affecting both consumers and businesses," he added.

- Stronger dollar

One of the potential consequences of Trump Trade and expansive fiscal policies is strengthening in the US dollar.

Elizundia said he has started to see concerns that a Trump presidency could negatively impact the US dollar, primarily due to "potentially irresponsible fiscal policies leading to increased deficits."

"Critics argue that such fiscal irresponsibility could weaken the dollar. This, in principle, holds true. However, in the broader global economic landscape, fiscal responsibility doesn’t seem to be resonating strongly among major economies. This context might mitigate the potential negative impact on the dollar. Therefore, higher yields resulting from these policies could even strengthen the dollar," he said.

- Tariffs and protectionism

Arguably the most controversial of Trump's economic policies was his protectionist trade approach, as his presidency still has the potential to impose additional tariffs on various imports of the US.

"These tariffs raise the costs of imported goods, which can increase prices for American consumers and may also provoke trade retaliations from other countries. The resulting trade uncertainty can negatively impact global supply chains and increase market volatility," said Elizundia.

"While it may be a smart political move to appeal to certain demographics by cutting trade relationships and bringing some jobs back nationally, it may not be the best economic move," he said. "Industries that aren't as competitive in a global market might have to meet domestic demand for those products, potentially at higher costs."

Elizundia said protectionist trade measures could lead to more expensive imports, which would ultimately affect consumers, who would face higher prices, while this could also introduce potential inflationary dynamics.

- Markets' initial reaction

Trump Trade has recently become evident in major stock exchanges in the US, which saw a brief rally in recent weeks with the possibility of the former president reclaiming the White House.

The Dow Jones Industrial Average, which includes 30 prominent American companies, hit a fresh all-time high of 41,376 points on July 18, after it closed at record levels for six consecutive trading days. The blue-chip index gained over 4.8% during this period.

The S&P 500 and the Nasdaq both posted seven-trading-day winning streaks that ended on July 11, during which they recorded more than 3% and 5% increases, respectively.

However, both exchanges had their worst daily performance since 2022 last Wednesday, as US stocks closed the session with major declines with tech firms' shares taking a nosedive. The slump came as tech companies' financial results either missed estimates or showed annual declines.

The price of Bitcoin, meanwhile, hit the $66,000 mark on July 17, again with hopes that Trump's new administration would adopt a pro-crypto stance if he is elected.

Trump's pick for vice president, JD Vance, held as much as $250,000 worth of Bitcoin in 2022, according to multiple reports.

- 'A political move towards Bitcoin?'

"Trump has recently embraced Bitcoin, Bitcoin mining and other digital assets," Peter Eberle, president and CIO of Castle Funds, a California-based investment firm that manages funds invested in Bitcoin and other digital currencies, told Anadolu.

Eberle noted that Trump has been quoted as wanting "all the remaining Bitcoin to be made in the USA," and some fundraising committees associated with his campaign are accepting donations in digital currencies.

"This is a dramatic shift in his attitude over the past four years. Has he changed his opinion on Bitcoin, or has he just realized that for many voters, this is an important topic?" he said.

Eberle said he believes Trump has discovered that many American voters consider their rights to self-custody of their digital assets to be under threat and that this is an important driving factor in their voting decisions.

"His campaign seems to be seeking to demonstrate a clear difference between his new views and those of the Biden administration, which has been hostile to the digital asset industry on several fronts," he added.

Eberle said he believes that a more balanced regulation and clarity around the regulators' priorities regarding digital assets will be a hot topic in the 2024 Congressional and Senate elections, as well as in elections on the state level.

"If you examine past votes on digital asset regulations, you will see that it is the younger members of both parties that are more friendly towards the digital asset space," he noted.

- 'Populist approach favorable for crypto sector'

Elizundia said the cryptocurrency space could also experience significant movements under the resurgence of Trump Trade.

"Although Trump's stance on cryptocurrencies has been ambivalent in the past, his populist approach and desire to challenge the status quo can be interpreted as relatively favorable for the cryptocurrency sector," he added.

"Economic and political uncertainty tends to increase the attractiveness of alternative assets like Bitcoin and other cryptocurrencies, which are perceived as a hedge against the instability of the traditional financial system," he noted.

He said Trump's more favorable stance could represent "a less harsh stance on Bitcoin," potentially reigniting institutional interest, but he highlighted that despite the initial positive interest in spot Bitcoin ETFs in January, net inflows have plateaued recently.

Elizundia said the resurgence of Trump Trade has the potential to reshape the economic and financial landscape on multiple fronts.

"The strength of the dollar and the dynamism in the cryptocurrency space are just some of the effects we could observe in the coming months as markets adjust to the expectations of a possible Trump return to the presidency," he added.