The guessing game

As the world scrambles to come to grips with what direction the election of Donald Trump to the United States Presidency will take the global economy and whether his plans to take a more closed approach to trade will come to fruition, markets, at least initially, seemed to be taking a measured approach.

Just one day after the shock result, BNZ chief economist, Tony Alexander, noted in his Weekly Overview newsletter that the recovery was swift after markets initially sold off and “attention turned to a likely economic stimulus from higher infrastructure spending, possible absence of the previously expected tightening of US monetary policy next month, likely tax cuts, and reduced burdens upon sectors such as health and banking”.

He went on to say that figuring out exactly what the incoming President’s policies will be and how they will fare in their attempted passage through the Republican-controlled Congress is currently anyone’s guess. “It needs to be remembered that Mr Trump campaigned not just against the Democrats but also against many Republican representatives. So their goodwill toward him, while undoubtedly there because of his victory, will be tempered by his past attacks on them as members of an elite increasingly divorced from the realities facing many Americans.”

Again, just days after the election, the NZ Herald quoted Reserve Bank Governor Graeme Wheeler as saying while it was too early to say how worried New Zealand should be, the two biggest issues for the Reserve Bank were what will happen to the US growth rate - because the US is 22 percent of the global economy – and what will happen to trade policy – particularly the US relationship with China and relationship with Europe.

In turn BusinessNZ, on November 10, said in a statement that international trade could be a source of tension with the election of Donald Trump.

BusinessNZ chief executive Kirk Hope said New Zealand’s prosperity relies on open and free trading of our export products “and if the US takes a more closed approach to trade in future, New Zealand export returns could be affected”.

"The US is New Zealand’s third largest export market. Trade with the US earns New Zealand more than $5 billion a year in products including meat, dairy and wine, and over $2 billion a year in services. A reduction in this level of trade would make a difference to New Zealand’s growth prospects.

"International trade generally could become more uncertain, as statements made during the Presidential campaign indicated an intention for the US to impose large tariffs on imports into the US from China and Mexico. This raises the possibility of tariff retaliation and a more general increase in protectionism by other countries. The overall result could be a general decrease in international trade.”

However, he went on to say that it’s possible that statements made during the campaign may prove to have been merely rhetoric, and the US will maintain its orthodox approach to international trade. “That will be the hope of business in New Zealand”.

And in light of the rise of Donald Trump a book produced by Bridget Williams Books in March of this year seems very prescient.

The publisher says The Interregnum, is a collection of young New Zealand voices, edited by Morgan Godfery, asking: “Are we entering the interregnum, that ambiguous moment between society-wide discontent and political change?”