Trump vic­tory in­ten­si­fies un­cer­tain­ties

Daily Local News (West Chester, PA) - - MARKETPLACE - 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 he also un­leashed un­cer­tainty on the global econ­omy by skew­er­ing trad­ing part­ners and of­fer­ing few specifics that might calm al­lies or busi­nesses.

Fi­nan­cial mar­kets reacted quickly and neg­a­tively to the un­knowns of a Trump stew­ard­ship of the world’s largest econ­omy. By Wed­nes­day af­ter­noon, though, stocks had re­bounded, es­pe­cially those in­volv­ing drug com­pa­nies, de­fense con­trac­tors and firms that re­build in­fra­struc­ture, which could ben­e­fit from a Trump ad­min­is­tra­tion.

Many an­a­lysts asked: Will — or can —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 had cam­paigned by vow­ing to rip up trade deals he deems un­fa­vor­able. He promised penal­ties for U.S. com­pa­nies that off­shore fac­tory jobs. He would la­bel China a cur­rency ma­nip­u­la­tor. He would re­peal Pres­i­dent Barack Obama’s health care law.

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’s felt aban­doned by po­lit­i­cal lead­ers.

The pres­i­dent-elect has promised to spur growth with a roughly $6 bil­lion tax cut over the next decade. It’s a pol­icy that could help the U.S. econ­omy but also cause its na­tional debt to jump, ac­cord­ing to econ­o­mists. Trump would also use tax cred­its to fund in­fra­struc­ture projects, say­ing he could de­liver $1 tril­lion in in­vest­ment over 10 years.

“Mr. Trump has pro­posed tax cuts and dereg­u­la­tion,” said Brian Wes­bury, chief econ­o­mist at First Trust Port­fo­lios. “That’s not a bad start. We have never seen a tax cut we don’t ap­pre­ci­ate.”

An­a­lysts at Credit Suisse noted that Trump “will learn quickly the power of his new pul­pit” as the mar­kets re­spond to his pro­nounce­ments.

“This morn­ing’s rally in in­fra­struc­ture-re­lated in­vest­ments has demon­strated that the mar­ket will re­act to any specifics it hears,” an­a­lysts at the Swiss bank con­cluded.

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

Among other things, Trump has floated the idea of ne­glect­ing the na­tional debt to ne­go­ti­ate for bet­ter terms. He ar­gued that he can boost growth by cut­ting taxes for the wealthy, slash­ing reg­u­la­tions and re­duc­ing the coun­try’s de­pen­dence on im­ports.

The flip side, ac­cord­ing to the Com­mit­tee for a Re­spon­si­ble Fed­eral Bud­get, is that Trump’s plans would raise the na­tional debt by $5.3 tril­lion over 10 years. This would be on top of the $9 tril­lion that the na­tional debt is al­ready pro­jected to rise by the Con­gres­sional Bud­get Of­fice. The increase in debt risks mak­ing it more ex­pen­sive for the United States to bor­row.

Trump has in­sisted that the U.S. econ­omy can grow nearly 4 per­cent a year — roughly dou­ble its cur­rent pace. The Fed­eral Re­serve has es­ti­mated that growth will av­er­age be­low 2 per­cent. (Dur­ing his cam­paign, Trump at­tacked the U.S. cen­tral bank as a pawn of Obama.)

Even his tax plans have raised ques­tions about whether sin­gle par­ents might face a higher tax bur­den while the wealthy en­joy siz­able sav­ings. The top 1 per­cent of earn­ers would re­ceive, on av­er­age, a tax cut of $214,690 in 2017, ac­cord­ing to the Tax Pol­icy Cen­ter. Those in the top 0.1 per­cent would en­joy a tax cut of more than $1 mil­lion.

“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 both the House and Se­nate, Greene said.

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

Key trad­ing part­ners ap­pear ner­vous, though their anx­i­eties might ap­pear to be vin­di­ca­tion for Trump vot­ers who op­pose glob­al­iza­tion.

MICHAEL PROBST — THE AS­SO­CI­ATED PRESS

A bro­ker re­acts as Pres­i­den­t­elect Don­ald Trump shows up­ona tele­vi­sion screen at the stock mar­ket in Frank­furt, Ger­many, Wed­nes­day.

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