Pray for Trump’s good side, bet on bad
HILLARY Clinton, described as one of the most qualified and best prepared presidential candidates the US has had, has been defeated by Donald Trump, one of the least qualified and least prepared for high office. How did this happen, and what consequences does it have for South Africa?
There have been several influential thinkers, such as US economist Joseph Stiglitz, who have warned for a long time that the benefits of the globalisation of goods, services and financial markets have accrued to too few.
According to Stiglitz, US economic output has increased sixfold over the past 60 years. Over the same period, inflation-adjusted wages of the bottom income distribution are unchanged. Median wages have been stagnant for the past four decades, and employment opportunities that offer decent pay for those with limited education are scarce.
In sum, some groups have experienced famine in a time of relative abundance.
While globalisation has had a positive impact on global growth, the distribution of that growth has been dangerously unequal. One argument is that the some of the returns from globalisation should have been invested in improving the capabilities of those of who were negatively impacted.
Trump’s victory is partly the result of a backlash against the political and policy elite that presided over these outcomes.
Closer to home, the student and service-delivery protests and labour unrest are also arguably inspired by social injustice and seemingly uncaring elites.
What are the economic consequences of a Trump victory for South Africa? The financial market impact has been muted. The rand, government bond yields and domestic equity markets had all stabilised by the time of writing. However, Trump’s proposed economic policies, if implemented, would on balance be negative for the South African economy’s longerterm prospects.
South Africa’s economic context is of a decline in commodity prices that has hurt national income. This has created deficits in the external and government income statements. These deficits must be funded and in the medium term reduced to make the country less externally vulnerable and to reduce the government’s debt burden.
The implementation of some of Trump’s proposed economic policies would make this adjustment harder. For example, the campaign pitch of bringing manufacturing jobs back to the US implies an increase in protectionist policies and possibility of trade tensions with important partners such as China. This would further constrain global trade, which is already growing at a significantly weaker pace since the credit crisis.
Risk premiums attached to emerging-market assets would also rise, given increased uncertainty.
Combined, these outcomes would make the adjustment of commodity producers, including South Africa’s, harder by curbing export growth and increasing the cost of borrowing.
However, there is an alternative narrative that is supportive of global growth lifting all boats. The logic here suggests that a President Trump will behave in a prudent manner in office, in contrast to the way he conducted himself on the campaign trail. That he would surround himself with the right people. Second, that the appropriate advisers would temper Trump’s nativist and protectionist instincts and instead propose sensible policies that would spur growth, such as appropriately funded infrastructure investment and the simplification of the US tax codes.
Finally, that the odds of implementing sensible policy are high, given that the Republicans have inherited a stable economy and control of both the Senate and the House of Representatives, in contrast to Team Obama, which inherited a burning platform.
To my mind, South African policymakers and executives should assume scenario one, even if hopeful for scenario two.
Nxedlana is FNB chief economist