Emerging-market currencies can weaken before new tariffs are introduced, according to research examining changes in expectations during US presidential debates. Countries with stronger export links to the United States were more exposed, while larger domestic financial markets helped cushion the reaction.
The study by Jantke de Boer of Ruhr University Bochum and Stefan Eichler of TU Dresden examines how anticipated American protectionism travels through currency markets. It was published in Emerging Markets Review and highlighted by Ruhr University Bochum on October 15, 2026.
For businesses buying equipment, selling goods or servicing debt in dollars, a political event abroad can therefore change costs before it changes any customs bill. The research also shows why treating emerging economies as a single group can obscure substantial differences in their exposure.
What is protectionism?
Protectionism refers to government policies intended to shield domestic industries from foreign competition. Tariffs are one instrument: they are taxes on imported goods. Governments can also restrict import quantities or use other measures that favor domestic producers.
Such policies can make foreign products more expensive in the importing country. They may also raise costs for domestic businesses that rely on imported parts and materials.
A country selling heavily into the US market could face weaker demand if American import barriers rise. Currency traders can respond to that possibility immediately, adjusting their positions before manufacturers receive fewer orders or governments introduce new rules.
Presidential debates offered a narrow window
Exchange rates respond to interest rates, economic releases and many other developments. Separating a trade-policy effect from that background is difficult.
The researchers examined 23 US presidential debates across six election cycles between 1996 and 2016. Their dataset covered 71 emerging-market and developing-country currencies, using exchange-rate observations in 15-minute intervals.
Debates generally occurred between 9 p.m. and 10:30 p.m. Eastern Time, when major US stock exchanges were closed and scheduled economic announcements were relatively uncommon. Studying a short period around these events reduced the scope for unrelated news to obscure the relationship.
To track shifting election expectations, the authors used contract prices from the Iowa Electronic Markets, a prediction market where participants traded on presidential election outcomes. Those prices served as a market-based indicator of changing election probabilities, rather than a guarantee about who would win.
The authors also used the Manifesto Project’s coding of election platforms to identify the more protectionist candidate in each contest. They did not simply assume that the same party held that position throughout the sample.
An earlier working paper presented at a European Systemic Risk Board workshop sets out the data and event-study approach. The final journal article develops the analysis of differences between countries.
Export dependence made currencies more sensitive
The central finding was that currencies with greater exposure to American export demand depreciated more when the protectionist candidate’s election prospects improved.
In the university’s research announcement, de Boer said: “The more heavily a country exports to the USA, the stronger its currency reacts.”
The proposed mechanism is forward-looking. Higher expected tariffs could reduce future American demand for an exporting country’s goods. Investors anticipating that change can alter their currency holdings now, rather than waiting for the trade figures to deteriorate.
The authors point to the first presidential debate in 2016 as an illustration. The Mexican peso appreciated as Donald Trump’s perceived election chances declined. Mexico’s close trading relationship with the United States made expectations about American protectionism especially relevant.
A weaker currency can have competing effects. Exporters receiving dollars may obtain more domestic currency when they convert their earnings. But imported machinery, components and dollar-denominated debt payments become more expensive in local money, assuming their dollar prices remain unchanged.
Currency depreciation may partly offset a tariff’s effect on export prices in some circumstances. The extent depends on companies’ pricing decisions, imported input costs and the size and persistence of the exchange-rate change.
Financial structure affected the response
Trade exposure alone did not explain all the differences. The final paper found that larger and more segmented domestic financial markets reduced exposure to protectionist shocks.
A deeper market has more capacity to absorb shifts in investment flows. Segmentation refers to less integration with international financial markets, which can limit the transmission of some external shocks. The finding concerns this particular exposure; it does not establish that financial isolation produces better economic outcomes overall.
Limited bilateral financial ties to the United States also reduced sensitivity. Greater US equity holdings were associated with greater exposure, suggesting that investment relationships can matter alongside exports.
Other potential defenses were less firmly established. The researchers found suggestive evidence that substantial foreign exchange reserves, currency-market intervention and active management of international capital flows could reduce adverse reactions.
Reserves are foreign-currency assets held by monetary authorities. A central bank can, for example, sell dollars and buy its own currency to support its value. Maintaining reserves has costs, however, and intervention is not a guarantee against depreciation.
The final study found no statistically significant differences across geographic regions overall. Country-specific trading and financial relationships were more informative than simply classifying a currency as Latin American or Asian.
Business exposure can run in both directions
For an importer, a depreciating domestic currency can raise the cost of an existing dollar invoice even when the supplier has not changed its price. An exporter may benefit from dollar receipts while simultaneously paying more for imported materials.
A useful starting point is therefore to identify the currencies in which a company earns revenue, pays suppliers and owes debt, along with the dates those payments fall due. Net exposure can differ substantially from the headline value of exports or imports.
Currency hedging, which uses financial arrangements to reduce exchange-rate exposure, is one possible response. Its suitability and cost depend on the business and the obligation being covered. The study did not test corporate hedging strategies or measure their effect on profits.
The research supports including political events in currency-risk assessments. It does not provide a trading rule or show that every tariff announcement will produce the same response.
A short-term reaction is not a lasting forecast
The underlying data end in 2016. The findings are not measurements of the effects of tariffs introduced in 2025 or 2026.
The debate windows also capture an initial response, not the currency’s eventual destination. Later opinion polls, central bank decisions and economic news can reverse a movement. Narrow observation periods help isolate the relationship but cannot remove every alternative explanation.
For policymakers, developing deeper financial markets or diversifying export destinations may reduce particular vulnerabilities, although neither can be achieved quickly. Financial openness also brings benefits that must be weighed against exposure to external shocks.
A business waiting for a tariff’s legal start date before reviewing its exposure may already have seen its exchange rate change. Whether that initial movement survives depends on the policy that follows and the other information markets receive.
