What are the economic consequences of a Donald Trump victory?

This morning has seen an event which some will describe as a victory for anti-establishment hopes and others as the end of the world as we know it. The victory of Donald Trump adds to the UK vote to leave the European Union as events which only just before they happened were supposedly not far off unpossible. As an ex options trader my first thought is that the media and dare I say/write it experts understanding of probability has had a simply shocking 2016. One of the things I learned back in the day was that when you make investments you need to wipe you own wishes,wants and likes from you mind science fiction style and maximise objectivity. Also the era of “big data” is not going so well is it?

This has some economic consequences in itself as much of the media has damaged itself in 2016 by being so consistently wrong. How that combines with an age where we consume so much more news is not crystal clear but I expect the main organisations to lose viewers and readers and for newer forms to emerge. There will be one minor relief which is that the one track mind exhibited by the Financial Times this summer and autumn will be replaced by choosing whether to blame Brexit or Trump!

Let me also throw in an issue for the banking and financial centre. After all we have been told that the victory of New York as a banking centre or rather the banking centre was nailed on by the UK EU leave vote. Yet @madamebutcher points out this.

Suddenly, all the American bankers want to stay in London.

We could perhaps do an exchange where our bankers go there and theirs come here. This would mean that everyone would be simultaneously wrong and right!

Economic policy

Has there been an election campaign where there was so little emphasis on the economics? The one main hint along the way as we have discussed on here was that both candidates were likely to have some form of fiscal stimulus. However there were elements of other policies which will affect the economics of which the main one was the protectionist rhetoric and promises of Donald Trump. From the FT.

Mr Trump has campaigned on his pledge to build a wall on the Mexican border, called for a ban on Muslim immigration and the deportation of 11m unauthorised immigrants.

There was also this.

Mr Trump has opposed the proposed Trans-Pacific Partnership deal and called for fundamental changes to the Nafta pact with Mexico and Canada……He has also threatened to impose punitive 45 per cent tariffs on goods from China, stoking fears of a trade war.

And this.

Mr Trump has promised the biggest tax revolution since Ronald Reagan, pledging to cut taxes across the board. He says no American business would pay more than 15 per cent of their profits in tax, compared with a current maximum of 35 per cent. The top rate of tax would fall from 39.6 per cent as the Republican reduces the number of tax brackets.

So there was in fact a fair bit but it was covered by a smokescreen on other issues including the obvious personality clash. It was there but often a secondary element rather than primary. There was no “It’s the economy, stupid!” like the original Bill Clinton campaign.

Fiscal Policy

There was already an element of fiscal expansionism in the tax cutting plans highlighted above. For younger readers this is very similar to what Ronald Reagan promised and did as President and back then it went well. Advocates of Arther Laffer were pleased to see the economy strengthen and as it did so tax revenues do well too. Of course that was then and now is a post credit crunch world where many old relationships have broken, but it did look to have worked back then.

On the spending front there was this clear hint.

We are going to fix our inner cities and rebuild our highways, bridges, tunnels, airports, schools, hospitals. We’re going to rebuild our infrastructure, which will become, by the way, second to none, and we will put millions of our people to work as we rebuild it.

That is very reminiscent of the “New Deal” of F.D Roosevelt from back in the day or at least it feels like it. Of course we should apply some sort of filter to an acceptance speech likely to be given at a time of a combination of high emotion and much tiredness but some of that will need to be done now I think. It was also backed up by this.

I will harness the creative talents of our people and we will call upon the best and brightest to leverage their tremendous talent for the benefit of all. It is going to happen. We have a great economic plan. We will double our growth and have the strongest economy anywhere in the world.

We have quite an odd combination of free market promises on taxes and apparent central planning on infrastructure spending. There has been a clear market adjustment to this which is that the 30 year ( long bond) yield has risen by 0.12% to 2.75%.

What about monetary policy?

The US Federal Reserve has been on the wires and media outlets in the last week yet again promising us an interest-rate rise in December. If we apply logic then the apparent fiscal expansionism expressed by President-Elect Trump should make that even more likely. However there is in reality doubt on two fronts now. As fans of the economic effect of bond yields then a persistent rise ( remember this one is not even a day old) in the 30 year yield will make them less likely to rise. Next central bankers love to use uncertainty as an excuse and 2016 has provided quite a lot of that.

So whilst an interest-rate rise in December should be more likely I suspect it has become less likely now.

Other central banks

The Bank of Japan has been on the wires because the Yen has strengthened to 103 versus the US Dollar and the Nikkei dropped over 900 points to 16,251. But apart from it promising “bold action” for about the 1000th time it is quiet. However I suspect one thing will change which is the constant uses of Brexit as a scapegoat will mostly be replaced by the election of Donald Trump.

Comment

You may be wondering why I have not referred to financial markets more and that is simply because many of them have calmed down apart from those I have mentioned. There is of course one other. The Mexican Peso has fallen some 10% and at times more today as we wonder how much a wall can cost? I have a Mexican neighbour and wonder what to say to her?

Meanwhile fiscal expansionism may well lead to a change in US Federal Reserve policy. I have wondered in the past if future interest-rate increases could be combined with (even) more QE so are we now singing along to Sweet.

Does anybody know the way, did we hear someone say
(We just haven’t got a clue what to do)
Does anybody know the way, there’s got to be a way
To Blockbuster

Should you be feeling down today it could be worse as Newsweek has proven.

Advertisements

35 thoughts on “What are the economic consequences of a Donald Trump victory?

  1. Hi Shaun, just flying out to Biarritz so I held off getting my Euros thinking that the strength of our Brexit confirmed with Trumptastic Triumphalism would lead to strength in sterling. Disappointingly I got 1.105 Euros for my pound, better tha parity at Stansted I guess.

    I’m hoping he will end crony capitalism, tell Janet Y. to put a price in money…. but I am holding my celebrations until I see action…. Just lime everyone else.

    • Hi Paul C

      You were right but traded too early. A problem which is so so common and something which one of my old bosses used to harp on about! A good day for the UK Pound versus the Euro leaves it nearly at 1.14. Mind you Stansted are probably still only offering parity….

  2. Great blog as always, Shaun.
    What a marvellous, marvellous night! “It’s all so unpredictable / But in the end it’s right” I hope Melania and Donald have the time of their lives.

    • Hi Andrew and thanks

      If the mainstream media is correct you are going to have plenty of company in Canada as so many people emigrate there. What they thought would be a flood from the UK will be dwarfed by their logic with those escaping a Trumped America.Of course the mainstream media have got the big issues wrong in 2016 so far…..

  3. Will anything really change that much? Trump will be run by what the Senate and his Party wants and they are run by big business. Unless, of course, they want to nuke the Reds – then we won’t be here to worry about anything!

    • I think avoiding a major war between the US and Russia or China is the main reason for preferring Republican candidate Trump over War Party candidate Clinton,, but Shaun doesn’t want us to use his corner of the blogosphere to vent political opinions. Regarding energy policy, a Trump administration would be very different from a Clinton administration, and that will make a substantial difference for Canadians, if not for Britons or Europeans. Ex-community organizer Barack Obama vetoed the Keystone XL pipeline, and Clinton stood by that veto. Trump has said he will approve the pipeline. Justin Trudeau may be forced to go slow on introducing a carbon tax for Canada if the US government, not really all that keen on green initiatives under Obama, becomes even less so under Trump:
      http://www.theglobeandmail.com/report-on-business/industryif-news/energy-and-resources/trumps-victory-throws-trudeaus-energy-climate-strategy-into-disarray/article32748673/

      • Hi Andrew
        Thank you for reminding me of the single most important aspect of Trump becoming President. At last a chink in the AGW ‘wall’ of political leaders. They may yet be hope that this scam is ended before it pitches the western world into a new , literally, dark age.

  4. That was a pretty quick draw this morning Shaun, but hopefully it’s not High Noon just yet…

    I suspect you are right, there will be a big US infrastructure spend and hopefully it might get their economy rolling without further “unconventional measures” from the Fed. I’ll bet Yellen is scratching her head this morning wondering where this leaves her dovish policies.

    With regard to Brexit, Donald was clearly a big fan and is naturally well disposed towards us here in the UK. As some headline writing wag in The Buchan Observer has it, “Aberdeenshire Business Owner Elected Next President!” Ignoring the elephant in the room, in that he is a ghastly creature, it is my view this result might play out quite well for the UK; far less so for the remaining EU coutries.

    • I’m not sure about things playing out well for the UK.

      Trump has said:

      1. He wants to improve the relationship with the UK.

      2. America will get along with any country that wants to get along with America.

      3. He wants big tariffs on Chinese products and wants to leave the WTO (World Trade Organisation), which he would have to if he imposes 45% tariffs on imported Chinese goods as this is a flagrant breach of the WTO maximum of 10%.

      Looked at in the whole and within context, Trump is in fact saying America is happy to get along with any country that wants to get along with America…….on America’s terms.

      So put bluntly and specifically he may be happy to have a relationship with the UK as long as the UK understands that tariffs in excess of 10% will be placed on it’s exports to America and he may expect the UK to make no retaliation, otherwise that would be viewed a the UK not wanting to get along with America.

      Time will tell and I hope I’m wrong.

      • Trump has only stated he would put tariffs on manufacturers who (for example, move jobs out of the US) exploit sweat labour to undermine US jobs.
        In my view, that’s a very, very good thing; not popular with neo-liberal globalists, but I care precisely as much about them as they do me.
        There is no reason I can think of, or that Trump has stated, that will mean US tariffs on Western European goods.
        If only our politicians cared as much about us.

        • “There is no reason I can think of, or that Trump has stated, that will mean US tariffs on Western European goods.”

          http://www.euintheus.org/what-we-do/trade-and-investment/ – “However, the enormous potential of the transatlantic commercial relationship is far from fully exploited. Given the low average tariffs under 3 percent the key to maximizing transatlantic trade lies in not only eliminating these but also tackling non-tariff barriers,…”

          Wake up, US tariffs on Western European goods are already in place!

  5. Hi Shaun
    Not surprised by the result, Democrats shot themselves in the foot by ignoring the ‘feel the Bern’ movement and expecting the african-american vote to be as strong for a white woman. Clearly the extra few white working class votes in the rust belt swung it. But Trump lost some traditional Republican voters, replaced by ‘dissolutioned’ voters in Democrat states hit most by job losses. Voting certainly went further than recent traditional lines ( recent being last 20 years or so).
    My admitedly ‘finger in the air’ analysis says that about 4/5% of voters seem to have been influenced by ‘brexit’ type issues, which was enough.
    NB Clinton will probably still win more votes overall, because of overwhelming wins in CA, NY.
    The vast majority of the MSM are trying desperately to pin the blame on their ineptitude of someone else this morning. only Fox supported Trump and even here it was mixed. CNN and MSNBC in particular have a lot of explaining to do. CNN may never recover after the leaks of their collusion over rigging Qs in the debates. The pollsters are mostly saying the result was within statistical probability , which is true, however doesn’t explain why they all predicted just one outcome from a range of options. The data was unbiased, their analysis and PR was not.

    • “The data was unbiased, their analysis and PR was not. ”

      this is the problem with MSM these days , they are biased to the left more so than at anytime in history and its really hard to find a proper critique or view

      time to shake up MSM and BBC

      hey Shaun , you might just get a juicy job out of this 😉

      Forbin

      • It’s not Left-v-Right any more; (Clinton is backed by the most reactionary of neo-cons) it’s establishment-v-people.

  6. hey I wonder if its time for the 2nd Union Vote

    this one for the UK to join the US of A

    as opposed to the Soviet Republic of the EU ?

    ehehe

    you have to laff at the pollsters , again another major vote they hopelessly predicted wrong !!

    as for economics , I agree with Foxy , Old Banana said he had little power despite being “in charge” . Trump will find it tough going to get anything done

    but then again he might be a Master Persuader ……. 😉

    Forbin

    We live in interesting times

    pull up the sofa and grab another bag of popcorn !

  7. Hi Shaun

    I can’t see many substantial changes at least in the short/ medium term. Some of Trump’s solutions are impractical and will have to contend with the many vested interests which are not going to fold their tent and go away.

    We are on the cusp of an economic slowdown with very high debt levels and ZIRP and this will limit the amount of any largess that Trump may spread around, although spending on infrastructure might not be a bad idea. The US is still boxed in.

    However, this is a political earthquake which will have resonance for years and may well result in a reassessment of the benefits of globalisation. I believe we will get a crash and it will be interesting to see the Trump angle. HC would finagle another bail out to save her Wall Street paymasters; Trump may not – and I emphasise may. Glass Steagall?

    • The benefits of globalisation to ordinary people are nil, zip, zero.
      It’s an evil we have only had to bear because of political capture.

      • “We weren’t voting on freedom of movement between US/UK” ???

        No according to Forbin you were voting for Freedom. which would include freedom of movement of people including between the US/UK, except Brexit voted for restricted or no immigration which of course restricts freedom of movement of all peoples including movement of people between the US/UK as Noo 2 Economics states.

  8. Hi Shaun, Markets slightly up (I got that wrong) but $ slightly down against the £ (I got that right) looks like this time I’ll be standing still as I sold out a week ago but the potential gain on markets which I have missed was wiped out by the increase in the £ as I did have 40% in $ denominated holdings.

    Think I’ll wait a while before going back in though as I don’t think markets have fully digested the effects of Trumpism. When they do, expect some falls. This may eventually be good news for bond holders, Pension Funds and insurance Companies.

    The Fed can’t move now on rates until they see how the economy settles. The next Fed move is as likely to be down as up.

    It’s going to be interesting watching Trump trying to build a wall between thh US and Mexico and then get Mexico to pay for it. It’s also hoping to be interesting watching him onshoring more old US jobs from abroad, paying American workers good rates of pay and managing to sell the American made products taking into account the massive inflationary forces which will be at play.

    I like your suggestion re swapping our Bankers for the American ones as I believe the American banks have al repaid their loans whilst ours continue on life support from the Tax payer 8 years after the initial operation. Unfortunately, given Trump’s and Brexiteers’ attitude towards immigration I don’t think it can happen.

    • “…Trump’s and Brexiteers’ attitude towards immigration ”

      tut tut

      some of us voted for Freedom and not the black propaganda touted by the Empire supporters

      India can be our greatest customer and with the rest of east asia

      a can do attitude is all thats needed

      Forbin

      • Certainly didn’t vote for freedom of movement of labour which is what the movement of bankers would be.

        India being the UK’s greatest customer (which I seriously doubt can do attitude or no) has nothing to do with allowing immigration.

        What are you lacing that pop corn with?

  9. Not sure how with the national debt approaching $20T he can afford to reduce income (tax cuts) and increase infrastructure spending.
    Yet again this morning the media were describing a flight to safety to the Japanese Yen incredible …a basket case economy yet it is a safe haven?

    • Yes, it’s going to be interesting to see how he simultaneously cuts taxes for the rich, the poor and Corporations whilst leaning on fiscal expenditure which will be sustained in the short term by extra borrowing but in the long term?

      From what he’s said it only leaves the American middle classes to be hollowed out but will they produce enough tax revenue to meet the interest payments?

      Maybe he intends monetising all new American Govt debt? Maybe he hasn’t thought through how any of his promises will be financed and implemented.

      It’s going to be very interesting…….

      • He is going to default, that is how you take on more debt. Cast off the old and liberal incurred commitments as from a differt time when money had no value.

  10. I wonder…Trump is a negotiator. “Build a wall on the border with Mexico.” is just his operning position. He does not want a wall. He actually wants another 1,000 Mexican police on the border and he will happily move to that position?

    Same deal for 45% tariffs (to come back to economics)?

    It does bother me that finger on the button “You damn well move Ruskies and I’ll nuke you.” might not actually be seen as the start of a negotiation…

    Presidents Le Pen and Grillo next?

    • I think this is a big part of “the problem” that is Donald Trump. He says he is very very flexible on many many things. His protectionist views on US jobs is left wing but his views on corporation tax are right wing – there’s no telling what he’s going to say/do next and whether he means it!

      • He is most probably a pragmatist. ‘Left/Right wing’ means nothing to him. He used to be a Democrat, now a ‘Republican’ because it was the only way to get elected.
        Think of him as a CEO of a large company trying to grow the bottom line whilst keeping the stakeholders happy. Any other view of him will fail.
        The correct question is whether he is as good a CEO as he thinks he is.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s