In Trump win, fis­cal surety lost

Election vic­tory in­jects deep un­cer­tainty in global mar­kets

Baltimore Sun - - ELECTION 2016 - By Josh Boak, David McHugh and Joe McDon­ald

Don­ald Trump’s prom­ise to put Amer­ica first helped pro­pel him to the U.S. pres­i­dency, but it also has un­leashed un­cer­tainty on the global econ­omy — skew­er­ing ma­jor trad­ing part­ners and of­fer­ing few specifics that might calm al­lies, busi­nesses and in­vestors.

Fi­nan­cial mar­kets re­acted quickly and neg­a­tively to the un­knowns of a Trump stew­ard­ship of the world’s largest econ­omy. Stocks sta­bi­lized Wed­nes­day morn­ing, while U.S. Trea­sury notes lost value, push­ing up in­ter­est rates. Many an­a­lysts asked: Could Trump shed his ag­gres­sive rhetoric?

“We sim­ply can’t know what type of pres­i­dent Trump will be,” said Paul Ash­worth, chief U.S. econ­o­mist for Cap­i­tal Eco­nom­ics.

Trump cam­paigned by threat­en­ing to rip up trade deals he deems un­fa­vor­able. He promised penal­ties for U.S. firms that off­shore fac­tory jobs. He would la­bel China a cur­rency ma­nip­u­la­tor. He would re­peal Oba­macare. He staked his cred­i­bil­ity on erect­ing a wall along the Mex­i­can bor­der and lim­it­ing immigration — ideas that con­nected with a mainly white work­ing class that has felt aban­doned by po­lit­i­cal lead­ers.

The pres­i­dent-elect has promised to spur growth with a roughly $6 bil­lion tax cut over the next decade, a pol­icy that could help the U.S. econ­omy but also cause its na­tional debt to jump, ac­cord­ing to out­side econ­o­mists.

Yet he pro­vided so few fleshed-out pol­icy de­tails as a can­di­date that he cre­ated the im­pres­sion of a White House that would be run largely on his in­stincts. For sev­eral in­vestors and an­a­lysts, that ap­proach has left a deep sense of un­ease about the di­rec­tion of the U.S. econ­omy un­der his watch.

Among other things, Trump has dis­missed the monthly U.S. gov­ern­ment jobs re­port — a fun­da­men­tal bell­wether of the econ­omy — as largely a hoax. He floated the idea of ne­glect­ing the na­tional debt to ne­go­ti­ate for bet­ter terms.

He has promised that the U.S. econ­omy can grow nearly 4 per­cent a year — roughly dou­ble its cur­rent rate. The Fed­eral Re­serve has es­ti­mated that growth will av­er­age be­low 2 per­cent.

“Tak­ing Trump’s cam­paign rhetoric at face value, there is rea­son to be­lieve that the poli­cies he sup­ports could push the U.S. into a re­ces­sion and could cre­ate wider con­ta­gion,” said Me­gan Greene, chief econ­o­mist at Man­ulife As­set Man­age­ment.

The one cer­tainty is that Trump “will face fewer ob­sta­cles in push­ing through his agenda” be­cause of the Repub­li­can ma­jori­ties in the House and Se­nate, Greene said.

Un­cer­tainty it­self car­ries risks to the global econ­omy and has been one fac­tor slow­ing growth since the 2008 fi­nan­cial cri­sis and Great Re­ces­sion. It can make busi­nesses and gov­ern­ments post­pone spend­ing on new plants, in­fra­struc­ture and jobs.

Key trad­ing part­ners ap­pear ner­vous, al­though their anx­i­eties might ap­pear to be vin­di­ca­tion for A Ger­man bro­ker in Frank­furt re­acts as Don­ald Trump gives his vic­tory speech af­ter pre­vail­ing in the U.S. election Tues­day. Trump vot­ers who op­pose glob­al­iza­tion.

Ul­rich Grillo, head of the Fed­er­a­tion of Ger­man In­dus­tries, said that “Don­ald Trump would be well ad­vised not to seal off the U.S. econ­omy from the world. Other­wise, the lack of clar­ity about the fu­ture course will lead to sig­nif­i­cant neg­a­tive ef­fects for the world econ­omy.”

The U.S. is a ma­jor mar­ket for Ger­man com­pa­nies like BMW and Daim­ler. By one es­ti­mate, some 1.5 mil­lion jobs de­pend on ex­ports to the United States, the coun­try’s big­gest trad­ing part­ner.

The U.S. and the European Union are al­ready strug­gling to make progress in free trade talks due to an­ti­trade sen­ti­ment on both sides of the At­lantic. The trade sec­tion of Trump’s web­site makes no men­tion of the talks.

World trade in mer­chan­dise will grow this year by only 1.7 per­cent, the slow­est pace since the fi­nan­cial cri­sis of 2008-9, ac­cord­ing to the World Trade Or­ga­ni­za­tion.

In his vic­tory speech, Trump adopted a softer tone but pledged to put U.S. in­ter­ests first.

“I want to tell the world com­mu­nity that while we will al­ways put Amer­ica’s in­ter­ests first, we will deal fairly with ev­ery­one. With ev­ery­one. All peo­ple and all other na­tions,” Trump said.

Do­mes­ti­cally, Trump has pledged to over­haul U.S. in­fra­struc­ture, some­thing that could boost growth through higher gov­ern­ment spend­ing.

He has vowed to spend $1 tril­lion on roads, tun­nels, ports and bridges. But fund­ing de­tails re­main un­cer­tain; he has em­pha­sized pri­vate money and said his plan would not in­crease the deficit.

An analysis in June by Moody’s An­a­lyt­ics said if Trump’s pro­pos­als on taxes, trade, immigration and gov­ern­ment spend­ing were fully adopted, it would slash U.S. eco­nomic out­put and elim­i­nate 3.5 mil­lion jobs, leav­ing the U.S. econ­omy “iso­lated and di­min­ished.”

Mean­while, Trump’s vic­tory is likely to lead the Fed to de­lay an­other rise to its key in­ter­est rate. An in­crease had been con­sid­ered all but cer­tain in mid-De­cem­ber, re­flect­ing a strength­ened U.S. econ­omy. But the un­cer­tainty gen­er­ated by a Trump vic­tory could prompt the Fed to wait.


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