Long-term impact of US campaign rhetoric
Diatribes against trade pacts and banking and health care are worrying Special to Gulf News
done in Congress in the next four years, corporate tax reform is highest on the list, in our view.
We think a one-off tax on current corporate cash left abroad and restrictions on interest deductibility are possible; these measures may be justified as an easy way to fund more domestic infrastructure programmes. Whether the tech sector is also caught in the political crosshairs in the coming years, joining banking and health care, will be key to watch. The Democrats’ left wing is increasingly agitating for scrutiny of Silicon Valley.
The currency theme concerns not only the value of the US dollar, but also broader monetary and credit conditions. US economic history has been marked, alternatively, by loose and tight credit. Today, there are surprising parallels between those calling for a return to the gold standard (mostly in the Republican camp) and those worried that Federal Reserve monetary policy may fuel another debt bubble and financial crisis (mostly among the Democrats).
They share a high degree of uncertainty about current monetary policy. Some see the Fed’s quantitative easing programme and its elevated balance sheet as a worrying leap into the unknown. The Fed has actively stepped in to complement what it considers deficient fiscal policy, which has put the institution in the spotlight — and on politicians’ radar.
Trump has boasted that he is the “king of debt” and Clinton shows limited focus on reversing the sharp increase in government debt under Obama. Implicitly, both candidates’ proposed economic programmes rely heavily on the Fed keeping rates low for a prolonged period.
They also assume continued private sector re-leveraging to lengthen the business cycle. However, this reliance on debt may mask the persistent challenges of slowing productivity growth and deteriorating demographics.
Whatever the outcome of the US presidential election, with both the Republican and Democratic camps questioning centuries-long US economic policy, their stance on free trade, corporate power and the US dollar is likely to have far-reaching implications for the rest of the world.
The writer is Senior Economist — US at Standard Chartered.