US economy: Continuity or the Trump unknown
ON taxes, public spending and protectionism the two candidates for the White House are diametrically opposed: Hillary Clinton represents continuity while Donald Trump frightens with his radical proposals.
But while many economists are alarmed by the threat Mr Trump poses to American prosperity, there is no shortage of small business owners and investors who believe the Republican candidate’s plans would benefit the economy.
With polls showing the candidates are neck-and-neck before today’s election, the race could be summed up as “Wall Street is pro-Clinton, Main Street is pro-Trump”, said Steve Odland, of the Committee for Economic Development, a non-partisan, business-led economic policy group.
But even Wall Street is somewhat ambivalent. A survey conducted by the CNBC network with 50 economists and Wall Street participants showed 82 percent think Ms Clinton will win, but 46pc feel Mr Trump would be better for the economy, compared to 39pc favouring Clinton.
Another survey conducted by the Pepperdine/Graziadio Business School in Los Angeles with 1353 small businesses across the country shows a majority of employers prefer Mr Trump due to his positions on health insurance (55pc to 45pc for Ms Clinton), as well as on taxes (66pc to 34pc) and trade (55pc to 45pc).
Mr Trump’s economic plan aims to revive economic activity through deregulation.
He promises to achieve 3.5-4pc growth – compared to 1.8pc projected for 2016 – by cutting the corporate tax rate to 15pc from 35pc, and lowering the income tax rate for wealthy taxpayers – the highest bracket would drop to 33pc from 39.6pc. The impact would be a sharp increase in the budget deficit.
Mr Trump also has promised to renegotiate US trade agreements, repeal the “Obamacare” health insurance program, and erect a wall on the US-Mexico border to prevent illegal immigration.
In contrast, Ms Clinton would mostly stick to President Barack Obama’s economic path.
The Democratic candidate’s plan includes raising taxes of the richest taxpayers, increasing the federal minimum wage, providing free local universities for the less affluent, and reforming Obamacare. Her plan also would widen the deficit but to a lesser extent.
Mr Trump is worrying the academic world: No fewer than 370 economists, including several Nobel Prize winners, signed an open letter in The Wall Street Journal appealing to voters to “choose another candidate”, saying Mr Trump spreads disinformation and “promotes magical thinking and alarm”.
“Donald Trump is a dangerous, destructive choice for the country. He misinforms the electorate, degrades trust in public institutions with conspiracy theories, and promotes willful delusion over engagement with reality,” the letter said.
Even the International Monetary Fund is alarmed by the spectre of growing protectionism, from Mr Trump to Britain’s vote to pull out of the European Union, which it says is a threat to global growth.
Mr Odland said Mr Trump’s style attracts some in the business world because he speaks to voters in the familiar blunt patter of a real estate developer negotiating a deal.
“We in the retail industry have to negotiate all the time with commercial real estate developers. They are bombastic, they are emotional, they come at things in a way that frankly sounds crazy,” Mr Odland said.
“He’s approaching geopolitics in the same way. Is it right? Well it’s unconventional. His supporters say, ‘Well, maybe it will end up to be a better deal for us,’ and that’s why they are willing to make the bet.”
Analysts at Capital Economics said that Mr Trump’s pitch might be exaggerated.
“A Trump victory might not result in the radical changes that many fear. He would probably soften his rhetoric on trade policy once in the Oval Office and would struggle to push his plans for fiscal policy through Congress and beyond.”
But in the immediate aftermath of the election, a Trump victory, or worse a disputed vote, will send Wall Street lower.
Analysts estimate a Trump win would send the broad S&P 500 index below the 2000 level, about 5pc lower than the week before the vote. That is what the index did on June 27, the day markets were shocked by the Brexit vote. But it was not long before the index rebounded. –