(Bloomberg) — Rob Subbaraman is preparing for his second Trump presidency with a new accessory in his economist’s toolkit: the head of global market research at Nomura Holdings Inc. downloaded Truth Social, the president-elect’s conservative social media platform.
“I’m going to have problems with my children,” said Subbaraman, who has been working in his current position in Singapore for 10 years. “I tell my kids at night to turn off all their devices, but I have to be on. I don’t know what Trump is going to do or when he is going to do it.”
The job has – once again – become a lot more unpredictable for economists, a typically staid group who rely on precedents to create the formulas and spreadsheets that support their predictions. Donald Trump’s first presidency complicated that approach, and his campaign talk and the appointments he’s made since winning the Nov. 5 election point to even more turmoil on trade, taxes, immigration and just about every other policy area anything you can think of.
Analysts are rushing to adapt, developing new models, hiring more people to crack thousands of lines of trading code and spending much more time with nervous customers. The end goal: produce accurate forecasts to help traders, businesses and governments navigate the new, chaotic world.
“Economists use models, and models rely on stable relationships and assumptions, but at this point we don’t really know what the assumptions are and the relationships may not be stable,” said Subbaraman, who hosted a call with 250 clients until midnight in the US worldwide. time on election night.
Analysts are primarily focused on tariffs and their impact on the world’s two largest economies: the US and China. Most agree that tariffs will be imposed – likely in the second half of 2025 and probably lower than the announced 60% on Chinese goods. There could also be universal rates, but with many exemptions and probably below the advertised 20%, the thinking goes.
Adding anything near these levels could keep prices high and slow the Federal Reserve’s easing cycle, which markets have quickly priced in.
Then there is the matter of secondary effects, which can hit economies harder than the tariffs themselves. The uncertainty itself is a brake on activity. Analysts at Barclays Plc estimate that growth could fall 0.3% in the US and 0.8% in China if trade policy uncertainty is raised to 2018 levels.
During that time, the slowdown in capital spending and trade due to weaker business confidence “weighed more heavily on Asia’s growth prospects versus the direct impact of tariffs on exports,” Chetan Ahya, chief Asia economist at Morgan Stanley Asia Ltd., wrote in an article from November 2013. 6 note. Ahya was global economics chief during much of the 2018-2019 US-China trade war.
Market ripples
To add to the challenge, financial channels also need to be assessed. The S&P 500 Index has risen, the dollar has strengthened and 10-year Treasury yields have risen since the election, as investors piled into the so-called Trump Trade.
These market movements ultimately flow through to the real economy as loan rates change, consumer and business confidence is affected, and importers and exporters around the world pay more or less for their transactions.
All this means that economists cannot only model the stone thrown into the pond, but also have to explain the ripples that are created.
Analysts at UBS Group AG spent five months developing a global tariff model that includes variables such as import substitution, exchange rates and how much companies are likely to absorb into their profit margins to try to capture the “joint equilibrium determination of output, inflation and exchange rates.” . tariffs from trading partners.” In other words, how tariffs will affect economies.
In a 74-page October report, chief economist Arend Kapteyn and a team that includes former European Central Bank senior economist Pierre Lafourcade laid out more than a dozen potential scenarios, including a global growth slowdown to 2% by 2026 if Trump were to keep promised tariffs enter. instead of the base estimate of 2.9%.
Tariffs on all imports “are becoming incredibly complicated,” Kapteyn said by phone. “There is no one right answer to what tariffs will do.”
Kapteyn’s colleague Alan Detmeister, who previously headed the inflation forecasting unit at the Fed’s Board of Governors, searches thousands of HS-10 codes, or specific imports and exports. These are then compared to things like the level of trade for that item and value added (how much of an item is actually made in that country) to determine how this might filter down into the economy.
Economically speaking, Trump injects many ‘structural breaks’ and ‘non-linearity’ into his predictions. Many economists have turned to scenario analysis that produces a range of outcomes, often with rough probabilities.
Maeva Cousin, Bloomberg Economics’ chief trade and climate economist, and her colleagues use a “computable general equilibrium model,” essentially a kind of scrappy program built by researchers at the World Trade Organization, to assess different tariff scenarios. They also use data from the Asia Development Bank and the OECD.
“These are all tools that may not have been useful in the age of globalization, but they are certainly useful now,” says Cousin, whose model suggests that 90% of US-China trade would disappear if Trump backs down from his 60% threat rates. .
Listen: China Could Abolish Donald Trump’s 60% Tariff Bluff
Predicting is one thing; Investing customers’ cash based on those predictions is another matter.
“This is the period of most uncertainty, but we need to take a stand,” said Monica Hsiao, chief investment officer and founder of Hong Kong-based Triada Capital.
Hsiao, who is trained in economics, international policy and law, makes both long and short bets on the credit markets – some for as little as a week. Her base case: final interest rates will be higher, but deficits and inflation will likely be better controlled than the market fears. The tariffs will target countries with the largest trade deficits with the US, but will be negotiated downwards over time.
In her current portfolio, this means switching to a higher yield, as it tends to be less interest rate sensitive, and also having to be careful about taking on absolute duration risk, or anything above 10 years. At least for now.
“Trump is someone you can’t always analyze,” she added. “He’s mercurial.”
During Trump’s first presidency, there was often a disconnect between what he threatened and the eventual policies implemented as officials reined him in and executives such as Apple Inc.’s Tim Cook. tariff exemptions won. History could repeat itself: Tesla Inc. by Elon Musk, for example, relies on factories in China.
Caution is required with all these variables. “We can’t jump into some kind of shadow,” Michele Bullock, Australia’s central bank chief and alumna of the London School of Economics, said during a panel discussion in Sydney last week.
Trump has yet to be sworn in — that’s not until January 20 — let alone announce policy and push it through Congress. That means some economists are asking a lot of “what-if” questions, but not yet throwing out their current predictions.
“It’s critical not to get caught up in the noise and drama,” said Mark Zandi, chief economist at Moody’s Analytics. “It is always important to focus on what policymakers do, and not necessarily on what they say. That was certainly the case during President Trump’s first term, and I suspect it will be even more so in his second term.”
–With help from Enda Curran.
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