Posted by Oliver Meredew on September 23rd, 2016.
November 8th 2016 will be a historic day in the United States, with the nation either electing its first female President or its first President who has never been elected to a public office. The latter also happens to be one of the most controversial political figures of recent history.
As well as Hillary Clinton being a Democrat and Donald Trump being a Republican, the two candidates on offer also differ radically in their plans for US economic development, both on the domestic front and further afield – meaning there could be significant change on the horizon.
While the outcome of the 2016 US Presidential Election remains on a knife-edge, clear ideas have nonetheless been formed about how a victory for either candidate may impact the US economy and domestic currency. The vote has the potential to generate dramatic movement in the value of the US Dollar, which will have a knock-on effect on US businesses and the UK businesses that trade with them.
As a long-time career politician, Hillary Clinton is generally expected to have a more ‘stable’ effect on the US economy if she takes the Oval Office, having experienced the White House lifestyle intimately as First Lady under the Bill Clinton administration. While campaigning, Clinton has made clear that she knows how to keep the US economic engine running.
While Clinton isn’t looking to reduce the current US corporation tax rate of 35%, she has advocated tax-relieving measures for small businesses, leaving larger corporations picking up much of the economic slack.
Clinton is expected to spend hundreds of billions on areas such as infrastructure and education, which (while not as immediate in their effects when compared to Trump’s policies) could ultimately be a ‘steady earner’ for the US economy, as solid transportation links and top-quality educational facilities would gradually improve the domestic trading capacity and produce generations of capable employees.
Interestingly on the educational front, Clinton has backed families earning $85,000 or less getting free public college tuition, while extremely wealthy families continue to pay their way.
While this would affect a minority of eligible students, possible objections to the rule might see the wealthy emigrate away from an increasingly affluent-hostile US, potentially contributing to a ‘brain drain’ and less able pool of employees.
On the sometimes contentious issue of the Federal Reserve, the US’ central bank, Clinton has indicated that the current selection of policymakers may end up getting replaced; and the hypothetical successors may adopt a more aggressive level of policy tightening and raise interest rates more regularly.
Higher interest rates would boost US Dollar exchange rates, in turn making it more costly for UK importers and less lucrative for UK exporters. On the flipside, the cost of importing into the US would decrease, due to the increased purchasing power of the ‘Buck’.
As the firm ‘outside’ candidate, Donald Trump has effectively rewritten the election rule book to come within reach of the presidency, doing and saying unprecedented things to gain the adoration of huge crowds and surprise the world with his meteoric rise to political power.
When it comes to economic policies, Trump has been typically bombastic, proposing a cut in corporation tax (CT) from 35% to 15%; in addition to easing the burden on existing businesses in the US, this would also raise the appeal of the country to outside investors, who would be able to take advantage of a competitive CT rate.
Regarding Trump’s overall world view on trade, the Republican has pledged to boost the US jobs market by keeping everything ‘in house’ via protectionist policies, such as imposing eye-watering tariffs on the importing of goods from overseas.
The general response has been that this risk-laden move could backfire on a Trump administration, due to counter-tariffs for trading or operating within the US being imposed by other countries in retaliation.
If this situation developed, it would be imperative to make conditions for living and working in the US as favourable as possible, given that many cases of outsourcing – producing components or providing related services outside of a country – are due to unfavourable conditions in the domestic market.
Adopting a protectionist outlook would also harm competition in the US, which could lead to existing companies going out of business, or entire organisations relocating overseas where conditions are more supportive for business.
Regardless of who takes the nation’s top spot, forecasts have been fairly unanimous about what will happen to the US Dollar in the immediate aftermath.
A dip in value is expected regardless due to a new pair of hands taking the wheel, but as Clinton is a Democrat and has the support of current President Barack Obama, the sudden decline in the value of USD in the event of her victory is predicted to be extremely short-lived.
A longer period of uncertainty would likely follow a Trump victory, given that even without being a rival Republican, Trump’s policy proposals are so radical that many seem set to involve reversing long-standing Democrat designs on the country.
While he could well end up leading the US to prosperity, the simple nature of Trump’s presence in the White House is set to trigger a sharp and potentially long-lasting decline for the US Dollar’s value.
Supporting this idea has been Head of Merrill Lynch Wealth Management Portfolio Strategy Mary Ann Bartels, who has said;
‘This time, we’ve got a lot of uncertainties, and if there’s one thing markets hate, it’s uncertainty’.
This expected devaluation of the US Dollar would make it considerably easier to invest in the US, given that after a drop, the same amount of Pounds after the election would get you more US Dollars than before. This is particularly important in light of the fact the GBP USD exchange rate plummeted to an over 30-year low following the UK’s decision to Brexit.
General estimates of the candidates capabilities have come from major international organisations; in a Clinton-supporting statement, Moody’s Analytics have said;
‘The upshot of our analysis is that Secretary Clinton’s economic policies when taken together will result in a stronger US economy under almost any scenario’.
When forecasting the effects of a Trump presidency, Moody’s were more pessimistic, stating that;
‘The economy will be significantly weaker if Trump’s economic proposals are adopted. It will be a difficult four years for the typical American family’.
Painting a more alarming picture of what Trump could do to the US economy with his trade policies has been advisory company Oxford Economics, which has said;
‘Towards the end of the five-year forecast, US GDP falls to a level around 5 percent below baseline. And the anticipated recovery in global growth is significantly undermined. If US businesses and consumers were to switch away from higher priced Mexican and Chinese imports following the imposition of tariffs, some other emerging market economies might initially benefit. They might then suffer if the US were to respond by raising tariffs on a broader set of emerging market economies. US exporters would most likely suffer as well, as impacted emerging market economies retaliate’.
The US Dollar is only expected to get more volatile as November 8th approaches, but the election itself will be over fairly quickly, with the result expected to be known by the morning of the 9th. Make sure that you keep an eye on the polls leading up to this momentous decision so that you’re not left guessing as to who could take the Oval Office, and monitor our latest USD exchange rate forecasts so you can time any upcoming currency transfers more effectively.
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