3 Key Global Issues That Could Complicate Investors' Lives in 2017

The U.S. electorate that voted for Donald Trump was hoping for more robust GDP growth than the 2% that the country has experienced for much of the last eight, post-recession years. 

Trump's inauguration is supposed to usher in a new era of less business regulation and trade deals that are more advantageous to U.S. manufacturers. That will supposedly help American workers earn more. 

But the president-elect faces global social, political and economic uncertainty, which became more apparent with the U.K.'s ongoing march to Brexit, apparent terror attacks in Berlin and Turkey and increasingly tense hotspots in the Middle East and Russia.

Trump's pronouncements about trade have at times seemed undermining to better relations with other major economies. Critics say that his rejection of major trade agreements and embrace of Taiwan, among other comments, could even lead to trade wars that destabilize the U.S. economy and equity markets worldwide. The coming year looms as one of increasing instability and uncertainty. 

Below you'll find three issues that will contribute to this atmosphere and complicate the lives of investors. 

  1. Trade Ties in a Trump Presidency

A Trump administration means an overhaul of existing trade policies and a significant departure from President Barack Obama's policies.

The revoking or scaling back in free trade deals could strain the nation's international relations and act as a drag on the domestic economy.

In a seven-point plan on his transition website, Trump briefly outlined his stance against free trade. Some of the key points include withdrawal from the Trans-Pacific Partnership deal, renegotiation of NAFTA terms with trade partners and withdrawal from NAFTA if the new terms are not agreed upon by the trade members.

However, many points in the outline focus on the world's largest emerging market, China. Trump plans to bring trade cases against China in the U.S. and via international agencies. He also plans on labeling China as a 'currency manipulator'.

In 2015, the U.S. goods trade deficit with China was $366 billion, which was a 6.6% increase ($23 billion) over 2014, according to the Office of U.S. Trade Representative. Speaking to CNBC, Marc Faber said that Trump trade war will hurt the US more than China.

Donald Trump recently broke the protocol by speaking to Taiwan's President and was criticized by China, not to mention diplomats in this country. China also expressed concern after Trump said that he could end the so-called "One-China" policy -- an agreement where the U.S. stands with China which considers Taiwan to be a territory and not a sovereign nation.

  1. Britain's Bitter Departure from The EU

In 2016, a populist wave drove Britain out of the  European Union, which led to Prime Minister James Cameron stepping down. Theresa May, the newly elected prime minister is looking for an "early solution" to quicken the Brexit. The exit has already begun to weigh down global trade and investments.

In an exclusive interview with The Sunday Times, May indicated that Britain could trigger "Article 50 of the Lisbon Treaty" by the end of March 2017. Article 50 would allow Britain to begin the formal exit process from the 28-nation E.U.

But triggering Article 50 may come with a huge price. According to The Telegraph, Britain will be automatically charged a whopping $62.1 billion (£50 billion) bill.

Britain also plans on introducing the Great Repeal Bill in the next parliamentary session beginning with the Queen's speech next May. Under the new legislation, the EU law will cease to apply in Britain.

A hard Brexit would mean that Britain will prioritize immigration policies. The domestic currency, the British pound, slipped below $1.25, a 186-year-low, as the Bank of England chose to keep the U.K. interest rates unchanged at 0.25%. The Bank of England's decision contrasted to the Federal Reserve's decision to increase the Fed Funds rate by 25 base points to 0.75%. The Fed cited stronger economic growth and rising employment for its increase.

While Brexit consequences were discussed at great lengths in 2016, the consequences of the Britain-EU divorce will be largely felt in 2017.

  1. The Future of the Euro

The major economic powers on the European continent, Italy, France and Germany, all face surging populist movements that want their governments to limit immigration and trade agreements with other countries. Far right parties who have become the face of these insurgencies may push their countries out of the E.U. 

An exit from the E.U. seems ever nearer in Italy where a Dec. 4 referendum resulted in a victory for Eurosceptic populist and nationalist parties and indirectly to the resignation of Italian Prime Minister Matteo Renzi, and in France, which faces a presidential election. Marine Le Pen, leader of the far right National Front (FN) and a presidential candidate has vowed to pull France out of the Euro.

Meanwhile, Germany's economy has been one of the world's bright spots in recent years. But the apparent terror attacks in Berlin have given fresh voice to nationalists, who question the immigration policies of German Chancellor Angela Merkel. Merkel may face strong opposition in her country's 2017 elections.

In addition, the assassination of the Russian ambassador to Turkey may be further harbinger of future turmoil that could undermine the European Union and its common currency.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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