LONDON, March 6 (Reuters) - Investors are bracing for

the possibility of Donald Trump returning to the White House

after Super Tuesday confirmed that the November U.S.-election is

set to pitch him against incumbent Joe Biden.

Below are five flash points in focus for world markets.

1/ TRADE TANTRUM

Any ratcheting up in trade tensions between the U.S. and

other big economies could shake up world equity markets, now

trading near record highs.

EU policymakers are concerned Trump could re-impose tariffs

on imports of European steel and aluminum suspended by Biden or

turn his attention to cars or EU curbs on U.S. big tech.

Trump says he would consider 60% tariffs on Chinese goods, a

move Capital Economics estimates - together with stricter tariff

enforcement - could lop as much as 0.7% off China's GDP.

During his last presidency, Trump imposed tariffs on $200

billion of Chinese goods. They remained in place under Biden.

Bilateral trade initially declined, but picked up during the

COVID-19 pandemic surge in U.S. demand for electronics, hitting

a record high in 2022 of $690.6 billion. It has since slowed due

to the impact of tariffs and tensions ratcheted up by the

Ukraine war.

"There is a lot of bad news discounted in China but nothing

like that," said State Street's head of macro strategy Michael

Metcalfe, referring to 60% tariffs on China.

China's yuan and equities, hurt by its stuttering economy,

could suffer.

2/ HISTORY LESSON

History predicts U.S. stocks will most likely end the year

positive, whoever wins.

That's not to say U.S. markets won't have a bumpy ride.

After all, a divided Congress could blunt both candidates'

policy plans.

Biden is expected to continue focusing on renewable energy,

Trump is more likely to scrap subsidies for electric vehicles

and focus on extending tax cuts.

"If Trump embarks on a revenge tour, that could weaken the

dollar, increase inflation, and result in higher bond yields and

lower investment," said Joseph Kalish, chief macro strategist at

Ned Davis Research.

Currency markets appear to already expect higher volatility,

with euro/dollar options volume expiring on the day after an

election at almost four times higher than usual, says Societe

Generale.

3/ BETTING ON DEFENSE

A potential Trump return may add to urgency in Europe to

build stronger military capabilities, adding fuel to a rally

that has seen defense stocks double in value over the past three

years.

Russia's invasion of Ukraine in February 2022 has

transformed defense from a no-go-zone over ESG concerns into a

popular trade.

For the first time since the end of the Cold War, Germany

has met the NATO target of defense spending at 2% of GDP. Others

are also set to meet the goal. Yet that might not be enough.

Trump has suggested he won't defend allies who fail to spend

enough on defense - and would even encourage Russia to attack

them.

"To a great extent, the damage has been done, and the

assumption of U.S. assistance is no longer safe," said Nick

Cunningham, analyst at equity research firm Agency Partners.

Aerospace and defense is the most popular European sector

for global funds, Morgan Stanley says, with allocations at four

times the benchmark weight, lifting the sector to record highs.

Talk of joint bond issuance to fund defense spending is also

growing.

4/ UKRAINE'S DEBT

Ukraine's precarious financial future is at the sharp end of

the U.S. election. Aid from Washington hangs in the balance

after a bill that could deliver billions of dollars became mired

in divisive politics.

Trump has called for de-escalation in the Russia-Ukraine war

and complained about the billions spent so far.

This comes as Ukraine has to hammer out a debt arrangement

with holders of international bonds who agreed to a payment

moratorium that runs out in August.

Ukraine's international debt has underperformed its peers

over the past two years, and analysts said U.S. election

uncertainty is adding extra pressure.

5/ PESO BAROMETER

Mexico's peso has long been a weathervane for the impact of

U.S. politics on emerging economies.

Trump's 2016 victory saw the peso drop 8% in a week, his

defeat in 2020 fueled a 4% rally.

However, so far investors have not yet made their bets on

how the currency will fare following a likely November rematch.

To add a layer of complexity, Mexico has its own election on

June 2. The ruling leftist MORENA party is leading in the polls,

pointing to continuity.

For U.S. voters, immigration and border control are pressing

issues, some polls show. Analysts note that Trump has so far not

made the trade relationship with its southern neighbor a key

campaign issue.

"As we approach elections on both sides of the border,

expectations of policy continuity in Mexico and low uncertainty

regarding U.S.-Mexico trade relations may mitigate foreign

exchange volatility," said Pedro Quintanilla-Dieck, senior

emerging markets strategist, UBS Global Wealth Management.