Donald Trump’s presidency poses a risk to the global economy, a leading credit ratings agency has warned, highlighting his unpredictability, his administration’s aggressive tone and his break with established “norms” in international relations.
Less than a month into a presidency characterised by frequent Twitter tirades and an executive to order to ban citizens from some Muslim-majority countries from entering the US, Fitch said Trump posed a threat to global economic conditions.
Fitch is one of three big ratings agencies that assign credit scores to governments based on their perceived ability to repay debts. It said in Friday’s strongly worded statement that the new US administration could damage those scores, known as sovereign ratings.
“The Trump administration represents a risk to international economic conditions and global sovereign credit fundamentals,” it said.
“US policy predictability has diminished, with established international communication channels and relationship norms being set aside and raising the prospect of sudden, unanticipated changes in US policies with potential global implications.”
Key risks, from Fitch’s perspective, included possible disruptions to trade relations, limits on migration that affect the amount of money foreign workers in the US send home, and “confrontational exchanges” between policymakers that could spark swings in currencies and other financial markets.
“The materialisation of these risks would provide an unfavourable backdrop for economic growth, putting pressure on public finances that may have rating implications for some sovereigns,” the ratings agency added.
It joined other commentators in predicting a possible boost to economic growth from Trump’s planned infrastructure spending, his plans to cut red tape and promised tax cuts.
Outlining a brighter scenario, Fitch said: “One interpretation of current events is that, after an early flurry of disruptive change to establish a fundamental reorientation of policy direction and intent, the administration will settle in, embracing a consistent business- and trade-friendly framework that leverages these aspects of its economic programme, with favourable international spillovers.”
But it went on to play down that prospect.
“In Fitch’s view, the present balance of risks points toward a less benign global outcome. The administration has abandoned the Trans-Pacific Partnership, confirmed a pending renegotiation of the North American Free Trade Agreement, rebuked US companies that invest abroad, while threatening financial penalties for companies that do so, and accused a number of countries of manipulating exchange rates to the US’s disadvantage.”
The full impact of those moves would not be known for some time and things could yet change, it conceded. “But the aggressive tone of some administration rhetoric does not portend an easy period of negotiation ahead, nor does it suggest there is much scope for compromise.”
The countries whose credit ratings were most at risk were those with close economic and financial ties with the US which Trump’s administration felt there was some kind of unfair advantage, Fitch said.
“Canada, China, Germany, Japan and Mexico have been identified explicitly by the administration as having trade arrangements or exchange rate policies that warrant attention, but the list is unlikely to end there,” it said.
Fitch also highlighted that the US had the world’s largest immigrant population and said that tighter controls and possible deportations, therefore, risked having wide economic repercussions.
Fitch’s concerns centre on the issue of “remittance flows”, the money foreign workers send to an individual in their home country, which in the US includes Mexico, Honduras, El Salvador, Guatemala and Nicaragua.
The agency also warned of risks to countries that have benefited from investment by US firms and where some of the money has helped fund industries in those countries that export back to America.
Fitch felt those countries could get singled out by the Trump administration for punitive trade measures. It signalled the UK was one such country, including it on a list of those with the highest stock of US investment in manufacturing along with Canada, Germany and Mexico.
Fitch’s intervention comes after warnings from leading thinktank the Organisation for Economic Co-operation and Development that a wave of protectionism and trade tensions risks denting global growth, stoking inflation and harming living standards.