Donald Trump has become the third US President to be impeached after the House of Representatives voted yesterday. But this does not immediately change anything. The chances of him being removed from office prematurely are low, as two-thirds of the Republican-controlled Senate would need to vote in favour of his impeachment. None of the Republicans in the House backed his impeachment yesterday.
Trump may even consider these proceedings will work in his favour as we enter an election year, by energising his Republican support base and enabling him to portray himself as fighting a ‘Democrat conspiracy’ to oust him.
More pertinently for us, what would a Trump impeachment, or election loss next year, mean for Emerging Markets? As we said in our October report, US President Trump’s shift to a less liberal stance on trade (specifically altering the narrative of trade relations with China), the dismantling of the Iran nuclear deal and the unilateral withdrawal from multilateral agreements have increased investment risks in emerging markets. In these respects, if Trump is impeached or loses the 2020 election then that might be positive for emerging markets. Any subsequent President, whether Republican or Democrat, may at least be no worse for emerging markets.
But relations with China are likely to get worse as superpower rivalry increasingly cuts across matters of trade, investment (BRI), technology and territory. For example, disputes in the South China Sea have grabbed less of the spotlight under Trump, but that does not mean a stable equilibrium exists or that countries like Vietnam and the Philippines have had to do more to find their own local solution (e.g. confrontation by Vietnam, negotiation by the Philippines). Relations with Iran (and, by implication, the GCC, Israel and Turkey) and US engagement in multilateral agreements and organisations may change under a new President, but the damage done to the credibility of the US to a signed deal will likely persist. Indeed, in our 2020 Visions themes, we argued that US politics under Trump has created a new normal for global diplomacy.
In other respects of substance (rather than style), Trump does not represent a break in US foreign policy; i.e. there are areas where his actions have not changed the investment risks associated with emerging markets. Trump’s compromises on ethics-based foreign policy and his inconsistent treatment of allies are arguably not new features of US foreign policy. And although he has pledged to reduce US active involvement overseas (“the endless wars”), the patchy public data available suggests this has not been the case as yet: e.g. in Afghanistan, the number of US armed forces, US national private contractor personnel and US airstrikes (including drones) was higher in 2018 (under Trump) than in 2016 (Obama’s last year).
If Trump wins a second term, on the other hand, could emerging market risks get worse? If he can achieve a certain level of agreement with China, Iran, North Korea, the Taliban in Afghanistan and Venezuela (even if any new deals end up delivering, in the long-term, less benefit than the status quo he inherited) then there is an argument that Trump may move on and allocate less of his attention in his second-term to foreign policy. It is too early to say, but our base case is to expect more of the same should he win re-election. For example, we would not expect a relaunch of the US involvement in the Trans-Pacific Partnership (as a means to lock in alliances in the far east), the initiation of new major military interventions (e.g. in Ukraine or Venezuela), the abandonment of Israeli security, or a greater diplomatic and trade focus on Africa (there is already a heavy military one which Trump inherited).