100 days later: are all countries emerging markets now?

In the latest episode of the Emerging Market Equities podcast, Nick Robinson speaks with Bob Gilhooly about Trump's first 100 days in office – and explores who might emerge as the winners and losers in his trade war. 

Podcast was recorded on 7th May 2025

Transcript

Nick: Hello, this is Nick Robinson from Aberdeen and you're listening to the Emerging Markets Equity Podcast. Together with our expert guests we'll dive into the driving forces behind emerging markets and uncover the opportunities that are shaping the future of this exciting region. So I think everyone expected a different, more volatile environment with the election of Donald Trump to US President, but I think few could have predicted just how much change would occur in his first 100 days. We've had some pretty unorthodox efforts to end two wars. We've had, threats to do hostile takeovers of Greenland and Canada. And then on the so-called Liberation Day, we had a complete overturning of existing trade agreements between the US and the rest of the world, which really sent markets into quite a spin. So today, we're going to try and make sense of some of the implications of all that's happened. So with that, I'm delighted to be joined by my colleague Bob Gilhooly. Bob is a Senior Emerging Markets Economist at Aberdeen. Bob has been with the firm for six years and prior to joining that, he was at the Bank of England, where he worked as an economist covering Asia with a focus on China. So it's great to have him here today and Bob, welcome back to the podcast you been on a few times. So this is standard thing for you now. 

Bob: Yeah. Thanks, Nick. Great to be back. 

Nick: Great. Brilliant. Well, let's start perhaps with, Trump's first hundred days in office since I think we passed that milestone maybe a week or two ago. What do you make of it in terms of the key outcomes that he's tried to achieve? And, you know, hazard a guess, I suppose, at what we can now expect for the rest of his presidency. 

Bob: Yeah. I mean, first of all, I guess it feels a lot longer than 100 days already. 

Nick: Yeah, it certainly does.

Bob: And I'm not sure I can believe there is almost four years still to go. But in terms of what he's trying to achieve, you know, like Trump's had a long standing complaint about trade deficits. He famously put an article into the newspapers in the 80s, to complain about the Japanese trade deficits. But I still think, you know, it's very hard to distil exactly what they're trying to achieve. I mean, if we take a few examples, you know, we certainly expected Mexico to be targeted fairly early on due to concerns around fentanyl, immigration, kind of border security. Rationale against Canada, you know, frankly, this is pretty dubious that, you know, there's little to no fentanyl flows coming from the northern US border. No one really talks about Canadian manufacturing shock destroying the US either. You know, you can combine I guess that kind of unusual focus on Canada then with breath of the Liberation Day tariffs. I thought that to me that opened up a risk that this was really all about raising revenue for the newly formed external revenue service. You know, rather than closing deficits or kind of attempting to bring, US manufacturing back. But equally, you know, tariffs not really been part of the budget negotiations in Congress and Senate. So I think they're, you know, the risk of tariffs being kind of hard wired in for revenue raising purposes isn't, I think, materialising or at least not yet. Similarly, I guess kind of complaints about the role of the dollar more radical proposals by Stephen Miran who's the chair of the council economic advisers, forcing US bond holders to swap into perpetual bonds. And I think these seem kind of increasingly far fetched, Mirin seems to himself be kind of stepping back from some of these ideas, or at least de-emphasising. In terms of the rest of presidency, the domestic agenda has arguably been a bit slower to take place. We do expect immigration will likely come to the fore fairly soon. We expect Congress will allocate a fairly large settlement to immigration enforcement as part of the budget reconciliation process. Given immigration is currently, you know, one of the policy areas Trump polls best in, I think we can expect a ramping up of deportations and immigration restrictions more generally once some of that cash is allocated. And of course, you know, tax cuts, we still think, potentially worth up to about $1.5 trillion should still be coming. That's more limited than Trump wants. And it needs to be largely matched by spending reductions elsewhere. But I think it's going to net out a certainly not nothing should net out of this kind of modest stimulus probably also lead to a bit of a worsening in the US deficit. And without fiscal consolidation, the US trade deficit is likely to remain pretty large, which is going to be a problem potentially for trade negotiations going forward. Looking further forward, I guess, as well, if Trump does badly in the midterms, we could potentially be going a bit round in circles, with trade tensions resurfacing, maybe any deals made in the near future being at kind of some risk of being renegotiated. So really here there's like a balance between kind of what he can achieve domestically while he controls Congress and the Senate, and where he's got kind of more freedom of movement on the external side, particularly on tariffs and other foreign policy. 

Nick: Thanks. Yeah, I suppose just kind of focusing in on the trade war. You know, in the build up to Liberation Day, markets were fairly unsettled with how things were likely to turn out. And now that we've had these kind of opening salvos of positions in terms of trade negotiations on Liberation Day, do you think we've reached past the point of peak uncertainty, and how would you expect things to unfold from here? 

Bob: Yeah. Look, I mean, the fog of uncertainty certainly hasn't cleared. Uncertainty, I guess arguably like a feature, not a bug of how Trump operates. If we view this as kind of part of creating leverage for trade negotiations, you know, that’s quite plausible reason to expect uncertainty to be persisting. And I think generally, this seems to be how Trump likes to operate both kind of in domestic US politics and international. So kind of keeping people, off balance, if you will. That said, you know, I do think there is a case to say that we probably have actually passed peak uncertainty. And maybe the day before Liberation Day was effectively that peak. And if we look at some market measures, such as the VIX, commonly referred to as kind of fear gauge for equities, that is certainly fallen back quite a lot since Liberation Day. And it's not really that elevated any more relative to long run averages, only around about five points higher than its long run average. I think I would argue also maybe the risk of retaliatory tariffs spiral has probably eased. You know, we have seen more administration focusing on really kind of signing deals, periods where they've tried to calm markets when things have been moving too adversely. You know, I think that probably also reduces and might not fully remove, but does kind of reduce the risk of more destructive policies coming to the fore. There is maybe a risk of, you know, taking this too optimistically, and that is just one market measure. And without getting too philosophical, not all uncertainty is created equally. We still don't have much confidence, I would say, in how the shock from Liberation Day, is going to play out in terms of damage to manufacturing and trade and the inflation shock that it causes to the US, too. And I think the scale and breadth of the Liberation Day tariffs, even if, you know, some of it's been paused and some of it's been rolled back, opens up this possibility of kind of non-linear effects. So it could be much worse than, say, simply trying to scale up, the effects that we believe happened during the trade war in Trump's, first presidency. So let me put another way, you know, the range of possible economic outcomes, is probably wider than the general change in economic forecast. I think would suggest.

Nick: Yeah, I suppose one of those things that's be more front of mind, I think in recent years, and certainly something that as an emerging market investor we're fairly familiar with is the ability of markets to regulate government policy. So, you know, for instance, in emerging markets, it's pretty common that if a government oversteps in terms of borrowings and tapping the bond market, there's quite a severe punishment from bond markets for that. And we saw something similar in wave in the UK a few years ago with the Truss budget and the punishment that the markets gave her for that in terms of a less disciplined spending. Yeah, we've seen a bit of that in the US, I think in terms of, the bond market kind of giving, you know, giving some quite interesting signals. Could you maybe talk us through that and what you're seeing, because obviously there's also all these foreign nations, also big holders of US government bonds, and there's this kind of overarching threat that maybe at some point they'll look to sell those treasuries and pressure yields.

Bob: Yeah, no look Nick, I think you think that the right is certainly discussion I've had and I think we've probably had together many times in an emerging market context. Will markets, eventually impose more orthodox policy on, you know, it's one that I've been having more, with people within the firm and also with clients, too. I mean, I guess I have, you know, some evidence of that you could point to Trump and top officials, you know, trying to reassure, pause, like all capitals pause, and all to backtrack when markets have been falling, I think it's a bit debatable whether they primarily kind of step in when bonds are backing up or equities, you know, were falling or kind of both. Used to be said by Republican leaning think tanks, at least during Trump's first presidency, that Trump did care a lot about the S&P 500. I did think it was notable the stock market performance during his first term did get a mention at the rose garden announcements on Liberation Day. We did see him step in, I think, with more reassuring noises when the S&P was around about the 5000 mark too. So yeah, I think equities and bonds are playing some of that role the moment. But it's probably not just, you know, I guess the bond and stock vigilantes here, I think he's probably is still probably feeling a bit more pressure or is likely to feel more pressure from polls going forward. Last week the New York Times Siena opinion poll showing Trump's net approval rating falling to -12%. You know, these sort of folds are not necessarily that unusual for president when they get elected. Trump did govern before with quite a large net disapproval rating and maintaining a pretty strong, political support from his base. But in this kind of, I think, traditional sense, the polls probably still do matter because they open up this risk that Congress might feel slightly more emboldened to push back against unpopular presidential action, such as cutting congressionally mandated programs, especially ahead of the 2026 midterms. But there's probably also, I think, maybe a kind of newer, maybe like nontraditional sense. Where kind of holes in public opinion, probably still, do matter. I mean, you know, it has been dubbed the kind of the manosphere or kind of internet influencers, which are thought to be kind of fairly important in helping Trump secure some of the youth vote. So you have Republican leaning commentators such as Charlie Kirk and Ben Shapiro. You know, there were some cracks in these sort of commentators when markets were falling. You know, some of these people were arguing against tariffs in particular. So I think it's kind of not just the polls, maybe we need to monitor, but also kind of some of these, these other nontraditional media commentators that are also going to be, going to be quite key. Also probably, you know, there's key contradiction potentially at the heart of Trump's policy, which is why I think polls going forward might matter a lot more than polls right now. You know, Trump's base might say they like tariffs. But at the same time, they're kind of hatred of inflation helped Trump beat Biden. So given we pretty much guaranteed to have some inflationary pressure coming through Trump's tariffs, I think that's definitely kind of one to watch to see how the polls evolve. Maybe go back to your question about bonds. I'm yet to be convinced, maybe that foreign bond holdings are, material constrained, is a card, that could still be played. We know, Japan has got substantial holdings of US treasuries. China maybe would be the one to kind of watch. And there was some speculation when US yields were backing up that, you know, maybe China or other countries in Asia were selling off Treasury holdings, to try to kind of reduce their exposure to the US. But, you know, thus far, I don't think it's a huge amount of evidence. And there's always a question about where else do you put your money, that's necessarily kind of safer or better or has such high yields at the moment. So yeah, I think one to watch on the Treasury could be a card the Chinese play at some stage, but I think things would have to go pretty bad between the US and China before that was seriously an option. 

Nick: Yeah, I suppose to some extent we are seeing China put more into gold in terms of reserves, but we've seen quite costly from an income perspective. Perhaps let’s go into the China relationship in a bit more detail. Yeah, Trump has been regulated by markets or at least by the Chinese government to a certain extent in terms of backtracking on some of his initial tariff positions. Do you think that the US and China can strike a deal and what does it take to get both sides to the table on this? 

Bob: We just got some good news today. Vice Premier He Lifeng is going to meet with US Treasury Secretary Scott Bessent in Switzerland this weekend. This planned meeting of top officials is, I think, definitely a positive sign after what's been a complete lack of communication, seemingly at the top levels between the US and China. It's not impossible, maybe that we could see some tariff removed, as, you know, a sign of good faith there. Particularly if that went hand in hand with anything kind of China could do, at least symbolically, on maybe restricting, the flow of fentanyl precursors, out of its country. But, you know, I don't want to get too ahead of ourselves here. This very much seems like kind of just the opening of a dialog, any full scale negotiations to kind of reset the US-China relationship, or yes, China trade still seems like a long way off. You know, for what it's worth, our working assumption is that we need to see some economic pain effectively on both sides. Say US inflation coming a bit higher, weaker growth on both sides. Maybe China struggling to kind of reroute its exports via third countries. Maybe that kind of sets the stage for negotiations to kind of really get going and really just be a bit more, a bit more serious even then, though, I mean, so once we kick off, I do think, you know, a deal itself could be very hard to strike. China, very unlikely, I think, to be willing to allow US to kind of take the win, or at least China to be seen as us taking a loss on this one. Anything with purchase agreements in it might seriously suffer from a lack of credibility. As you recall, you know, the US and China did sign a trade agreement during Trump's first term, the so-called phase one deal, that required China to buy an extra $100 billion worth of US goods in the first year. You know, there was, of course, the pandemic. But they were showing very little signs of really ramping up to purchase goods, anywhere close to that sort of scale. And then there's kind of the more fundamental issues, if, you know, purchasers can't kind of do the job to calm down tensions, it's probably going to be very difficult for China to overcome accusations that it has in place non-tariff barriers, you know, be that state subsidies or kind of other non-tariff barriers associated with kind of regulation or standards, and then ultimately, you know, trade balances, determined by fundamentals such as National Savings. And it's not, I guess, at this stage, really clear. The Chinese Communist Party will really say embrace a strong rebalancing towards consumption that might push down on its national savings and therefore push down on its trade balance. You know, embracing I guess consumption, I think, is ultimately a strategy, you know, firing that domestic engine of consumption could make China more a more independent and certainly power growth over the long run. But in the near term, you know, investing less and consuming more might actually work against China's other aims, which are to make it, you know, more resilient, less reliant on the US, less exposed to future trade actions or kind of other geopolitical tensions. So I think there's a pretty big risk there that, you know, Chinese savings effectively remain a very large, source of tension. And China's, you know, very large trade balance with the US and other countries, gives its other partners quite a lot of problems to contend with. I mean, I suppose like if I was trying to end on a more optimistic note, Trump, I think, can at least declare another quote unquote best ever trade deal, if he really wants to, you know, to some extent, the ball, I think it's in his course it's term and what he can sell as a as a win to his base.

Nick: Yeah. So I guess there's a willingness on both sides. But what would your best guess be in terms of timing. Are we talking months here or do you think more like weeks?

Bob: I think months. Probably lucky if it's not going to be years. I think, you know, if they were able to do a bit a trade deal this year, that would potentially actually be pretty, good going. And I think, you know, that's mainly a question about just the size of the hurdles that need to be kind of overcome. So yeah, fingers crossed, maybe the start of negotiations could be more like weeks or low months. But then, yeah, is very unclear how long an actual deal is going to, is going to take. And ultimately, Trump and President XI are going to need to be the ones that really sign this one off. So yeah, the negotiators can do a lot of the legwork. But, you know, ultimately, it's going to have to be signed off by the, by the top guys.

Nick: And, as we speak today, I mean, exports from China into the US pretty much ground to a halt, as my understanding, which is going to have quite a big negative impact on the Chinese economy, potentially. Do you think that China can offset this, this tariff shock it's experiencing at the moment? And, you know, can they still hit their growth target?

Bob: Yeah, I'm pretty doubtful that policy will do enough or can do enough. But I am more reassured that policy is sufficiently flexible and is likely to loosen enough to avoid significantly worse outcomes. So there's a few reasons, I think, for that. Like, unlike the last trade war when Chinese policy was already pretty tight, so the authorities had begun their de-risking, agenda at that point, you know, policy had at least already begun to ease ahead of Trump's election, when we had a very notable pivot in Chinese policy in September, which really kind of opened the door for more policy easing to come. We then got more fiscal easing confirmed in the two sessions in March. You know, that fiscal easing will still be working its way through the Chinese economy probably is being ramped up, as we speak. And I think, you know, will probably be expanded, even further. And, you know, I think, you know, also the policymakers seem quite attentive and we just got another raft, of policy easing announced today. So the PBoC, along with various other financial regulators in China, announced a ten basis point cut to the seven day reverse repo with a 25 basis points of pledge supplementary lending, 50 basis point reduction, reserve requirement ratio, which frees up about a trillion renminbi in liquidity. And also, an expansion of the re lending quartet over about a trillion, renminbi too. So, you know, I think this is this is certainly welcome. I think this is just kind of a stepping stone, though. More needs to be done and if that additional fiscal stimulus and additional monetary easing is delivered, you know, probably the authorities are then done enough to kind of say limit the shock to the Chinese economy to around about a 1% drag on the level of GDP over the next two years. So I think in gross terms, that should be enough to kind of keep growth above 4% this year. You know, pencilling in 4.3% very uncertain, of course. I think probably growth will be, you know, a little bit too low for them to see, you know, we're credibly hitting the around 5% target, but neither will it be so far away, that they feel like they, they've kind of been, been embarrassed. There probably is a little wrinkle to that kind of relatively positive story I'm kind of telling there. So even if real GDP is kind of okay, the nominal environment is probably likely to remain, a bit weaker, you know, heading into this trade war, China is kind of already, suffering from a near record breaking run of deflation as measured in the GDP deflator and very weak CPI inflation. So if they don't condone an FX depreciation, which they certainly haven't done so far, you know, we could well see nominal GDP growth falling short of real GDP growth. And that matters to the extent that it does make fiscal dynamics at the government and local government level, more challenging. This would also be the third year of exceptionally low inflation in China. So I think that broader trend of having or kind of risking re anchoring inflation at a low rate, you know, does risk kind of blunting some policy, easing inflation expectations are really are re anchoring lower. You know that's pushing up real rates. It's another reason to kind of think yes authorities are easing. But you know some of that easing is maybe also being blunted just by the difficulty of like, really offsetting the trade war. And also just because the policy mix in China is still quite kind of supply side balance, you know, their answer to most things is let's invest more. And you know, unfortunately, you know, that embeds kind of low inflation dynamics within the economy, which, are not completely a free lunch. 

Nick: I think, you know, thinking a little bit more broadly about the rest of the world. Have you been able to identify who the likely winners are in this trade war? And, who's who aside from China is likely to find the going pretty tough now going forward. 

Bob: I mean the initial focus on the USMCA partners Mexico and Canada certainly did, make me and the other emerging market economists, here at Aberdeen, a bit nervous. But as the focus has shifted to China, I think we've become a bit more confident once again in our call that Mexico is probably going to end up being a kind of long run winner, long run beneficiary, of reshoring of manufacturing away from China, and closer to the US. Outside of Mexico, you know, India also seems like quite a plausible winner. You know, appears fairly well placed, maybe even best placed to secure an early trade agreement with the US that might see India lower its tariff rates to around 0% of manufactured goods from the US. You know, they may well agree to kind of end up purchasing more agriculture produce. Maybe India could kind of pivot its purchase of military hardware away from Russia and towards the US. And additionally, there's a case here that, you know, not only could maybe India benefit from, some reshoring moving away, you know, more famously, I guess, with Apple now producing some iPhones in India. But, you know, there's this chance I think, you know, external pressure, if used well, can sometimes be quite useful. So, you know, external pressure in this case could be useful in helping Modi overturn domestic interests. These have, you know, historically made it difficult for India to really become kind of trade and manufacturing powerhouse. So, you know, I think probably one to watch. But that kind of trade and manufacturing dynamic for India, which has kind of been a missing part of its growth and development story that's been so typical for other fast growing emerging markets, could perhaps come true finally, and maybe, you know, while I think I think this was a little bit too early to say for sure, you know, we still think ASEAN is in a pretty good position. It's got, you know, very deep manufacturing supply chains within the region. Seems like a plausible winner from reshoring of manufacturing. So assuming, you know, they can strike deals, tariffs don't settle at too high a level. And also that there aren't kind of conditions placed on rules of origin. So, you know, the proportion of goods that are made with Chinese products. I think ASEAN could be potentially in a kind of a good position to kind of win in the medium to long run. I mean, turning a bit closer back to the US then outside of Mexico, you know, I guess we'll probably see rest of Latam. We don't think of that as kind of maybe a traditional winner. But it probably will struggle maybe to attract that kind of foreign direct investment. But at the same time, you know, they did escape fairly unscathed from the reciprocal tariffs on Liberation Day. You know, that's more near-term, of course. But yeah, add to that, you know, some like Brazil have actually been benefiting, you know, China’s been pivoting agricultural purchases away from the US and using, you know, Brazilian, agricultural suppliers instead. And, you know, for much of much of Latam, you know, China is their largest trading partner and not the US. So, you know, the health of China in the long run does matter quite a lot for Latam. 

Nick: All right. Great. Well, thanks Bob for that. I think that's probably a good place to draw it to a close. So, thanks Bob for joining it's much appreciated. 

Bob: My pleasure. Thanks for having me on. 

Nick: And thanks to everyone today who took the time to listen in. If you enjoyed today, then please download our other podcasts from our website or wherever you normally get your podcasts. Watch out for our next episode and tune in.