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The Impact of the US Presidential Election Result

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Following the result of the US Presidential Election, Finance Monthly reached to Dun & Bradstreet asking them to discuss the economic impact of the result.

 Dun & Bradstreet has held its Country Risk Rating for the US at DB2a following the election of Donald Trump as the next president. The company has also reaffirmed their near-term growth forecasts, as the fundamentals  of  the  US  economy  remain  strong  enough  to  absorb  the  increased  uncertainty triggered  by  the  election  result;  their  proprietary  micro-level  data  supports  their  forecast  that  the economy is on track to end 2016 with 1.6% growth.

 

DOMESTIC IMPLICATIONS

Expansionary  fiscal  policy  is  expected  to  take  centre  stage  under  the  new  president.  The  US economic expansion of the last few years has been characterised by an over-reliance on monetary policy,  and  we  have  been  arguing  for  a  more  active  fiscal  policy  boost  to  growth.  Infrastructure spending is likely to be one of the biggest and most visible elements of the new government’s fiscal policy. The Trump campaign had proposed an aggressive infrastructure plan in the lead-up to the election. We still need to see more details of how Trump proposes  to fund spending on the nation’s highways,  bridges  and  tunnels,  and  of  what  that  implies  for  the  longer-term  budget  deficit  and public debt  burden.  Nevertheless,  some  form  of  infrastructure  spending  is  a  certainty,  and  the construction vertical will benefit from that.

Tax  reform  will  also  be  high  on  the  new  government’s  agenda;  the  extent  and  the  nature  of  the reforms, including implications for  the  Foreign Account Tax Compliance Act (FATCA)  are, again, uncertain at  this  point.  However,  it  is  almost  guaranteed  that  the  new  tax  policy  will  involve  a reduction in tax rates for both businesses and individuals to jumpstart spending.  This will also be one of the areas in which we expect to see extended discussions in Congress. Repealing  Obamacare,  or  the  Affordable  Care  Act  (ACA),  was  one  of  Trump’s  high-profile campaign promises.  Since  his  election,  however,  Trump  has  toned  down  his  opposition  to  this legislation, indicating that some parts of Obamacare are likely to survive. Once again, we need more details on which parts of the ACA will be removed and what sort of policies we can expect in their place.  A jump in the prices of healthcare stocks was one of the immediate reactions to the news  of Trump’s  victory,  as  investors  expect  less  regulation  for  health  insurers.  But other sections of the healthcare vertical, like medical devices, could see a negative impact.

Regulation, in general, is expected to wane under the new government.  This will be most significant for the financial services vertical, where a reduction in regulations is expected based on the Trump campaign’s opposition to the Dodd-Frank Act.  Parts of the Act are expected to be retained, while the government will try to dismantle the rest of the provisions.  More clarity is needed on the new rules  that  will  replace  the  discarded  provisions,  but  equity  prices  for  customers  in  the  financial services vertical are likely to see increases in the near term.

The key point to note is that most of the President-elect’s proposed and expected policy measures are designed to be reflationary, and work on the assumption that they will stimulate demand and inflation in the US economy.  Again, the devil is in the details, which will determine how successful these policies eventually are. We advise our customers to be cognizant of the variations in the data below the topline and to adjust their business strategy based on their specific exposure to certain verticals and how they may be impacted by potential policy shifts.

 

GLOBAL IMPLICATIONS

The Trump administration’s policies will also have significant implications for the global economy. The Trump campaign ran on an anti-globalisation stance, promising to redefine US trade relations with the rest of the world; as such, we expect a more restrictive trade policy under the new regime.

Campaign  promises  included  a  repeal  of  the  existing  North  American  Free-Trade  Agreement (NAFTA)  between  the  US,  Canada,  and  Mexico,  and  stiff  opposition  to  new  multilateral  trade agreements  like  the  Trans Pacific  Partnership  (TPP)  and  the  Transatlantic  Trade  and  Investment Partnership (T-TIP). We believe TPP and T-TIP will not go through, as both Congress and the new government will oppose them. The president will likely try to renegotiate the terms of NAFTA, and, if he is unsuccessful in obtaining greater concessions for US exporters, could invoke Article 2205 to leave  NAFTA;  the  president  does  not  require  Congressional  approval  to  do  so.  If the US leavesNAFTA, Canada and Mexico can still be part of it.

The  bigger  question  is  over  the  tone  of  US  trade  policy  in  the  next  few  years,  particularly with  China.  During  the  campaign  Trump  promised  to  impose  45%  tariffs  on  imports  from  China. However unfeasible such a course of action is in practice, a retaliatory increase in tariffs from China could turn into a trade war that would have adverse impacts on international trade flows and global growth.  Moreover,  US  companies  are  believed  to  have  invested  over  USD200bn  in  China  in the past  25  years,  potentially  making  US-owned  companies’  supply  chains  –  such  as  Apple’s  –vulnerable to the vagaries of a breakdown in the economic relationship.

Moreover,  note  that  the  global  impact  of  the  US  election  result  goes  far  beyond trade relations:  significant  geopolitical considerations include the new  government’s relations  with Iran, its policies towards  radical  Islamist  groups  such  as  Islamic  State,  and  its  involvement  in  NATO.  Finally, Trump’s success is likely to generate support for the populist leaders who have emerged recently in many European countries. This would reflect a strengthening of a shift towards a more protectionist world, with less support for free trade and globalisation.

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