Daily Management Review

The Emerging Markets That Are Taking The Hit Of Protectionist Trade Policies


Donald Trump’s trade tariffs have resulted in increase in cost of exporting top the US for the producers in emerging countries from Turkey to China. There is also nervousness among investors in these economies which had turned into safe havens following the 2012 Greek crisis.
This report looks at some of the emerging markets that have been hard hit by Trump’s trade policies.
The sanctions imposed by the US on turkey has troubled the already vulnerable economy of the country. Cheap credit had fueled the growth of some of its biggest businesses in the last 10 years. But now the credit costs are higher and therefore companies are now having to mortgage their loans with crippling refinancing costs.
There has bene a drop of 40 per cent in the Turkish currency – lira, so far this year and many analysts believe that Turkey would be forced to avail a rescue bailout form the International Monetary Fund. However, that has been put on the background by the government.
It is expected that about $600bn would be spent in India this financial year for exports of a wide range of products from crude oil and electronics to gold. The trade deficit of the country is at the highest in the last 5 years at $18bn in July.
There can also be a rise in inflation from 4.2 per cent reported last month to 5 per cent because of protectionist measures. Indian companies too have raised huge capital through foreign debt at low rates of interest and are now concerned about increased costs for servicing those debts with interest rates being raised. At the end of March, the external debt of India was at $530bn at and 42 per cent of that is to mature March next year at higher rates. There has also been a fall in the rupee. 
The vulnerabilities of Argentina are similar to that of Turkey. The country faces issues with public spending balance of payments and the requirement for refinancing loans with US banks. There has bene a tumble in the Argentine peso after the Turkey crisis. This resulted in the central bank of the country increasing interest rates by five percentage points to 45 per cent. There is also a huge political corruption scandal going on in the country. And the government has already agreed to an IMF bailout.
South Africa
Issues of depreciating currencies due to concerns over their stability in a global economy riddled by trade barriers is being faced by the economies of South Africa, Ukraine, Mexico, Indonesia and Brazil.
There was a fall of 10 per cent in South Africa’s rand last week and was the worst performing emerging market currency aside from the Turkish lira and Argentine peso. The new government in the country is riddled with problems of public sector deficit, a balance of payments deficit and corruption scandals.
China has been facing issues with a slowing GDP growth and a trade war with the US. Mire liquidity is being injected in the economy by its China’s central bank to make lending cheaper which has driven the yuan lower against the dollar.
This is diametrically opposite to what the US central banker is doing – closing down quantitative easing and increasing interests which makes lending more expensive. Trump has not been happy with the low value of the yuan which has the impact of making Chinese imports into the US cheaper and offsets the effect of any tariffs he levies.