The recent United States 2016 Presidential Election was closely watched by pundits all over the world as everyone waited with bated breath to find out who between Democratic candidate Hillary Clinton and Republican nominee Donald Trump would get elected. Now that the elections are over, the business world has begun analysing what a Trump presidency will mean for the dollar and how the President Elect’s proposed policies will affect the global economy.
Trump's positions have generally been in line with those traditionally embraced by his party. He voiced the intention to lower the corporate tax rate, came out in favour of a reduction in the national debt and is planning to increase spending on infrastructure all over the country. Where he’s diverged quite significantly is with regards to international trade. Specifically, he’s been very critical of trade negotiations with China and Mexico.
Prior to his election, an article by Bloomberg predicted that a Trump win would bring the dollar down by 2%. As it happened, when it appeared that Trump would beat Clinton in the election, the fall in US stock futures matched the damage that occurred after the Brexit vote. Everyone feared a global economic meltdown and news channels all over the world began interviewing local government authorities, looking for information as to how each country was going to deal with the new appointment.
However, unlike with Brexit, the market recovered its position quickly. In fact, according to analysts at Capital Economics, the precedents set by Brexit might have allowed investors to be better prepared for the possibility of a Trump presidency. Traders quickly decided that Trump’s appointment was going to be good for business which led to S&P 500 finishing positively despite being 5% down earlier in the session. With Trump’s intention of increasing spending and lowering corporate tax rates, some have begun to embrace the idea of a prospective period of economic growth in the United States.
What does this mean for Australia? Trump has been very vocal in his criticism of China, Australia’s biggest trading partner. If he goes ahead with his proposed premium of a 45% tariff on all imported Chinese merchandise, there are concerns that he would spark a trade war between China and the US, which could have devastating effects on the Australian economy. However, experts have pointed out that there is general trend towards protectionism so the impact of such a policy may not be as large as feared. With so much at stake, all eyes are on Trump, watching for his next move.
This post contains general information and does not represent financial advice.