What the Trump? It doesn’t look good for SA
would be disastrous for South Africa as more than half of its gross domestic product (GDP) is either imported or exported, said Lings.
It’s unclear whether the election outcome will affect interest rates in the US. It’s expected Trump will appoint a more hawkish (generally in favour of higher interest rates) Federal Reserve chairperson when the incumbent’s term is up in 2018.
It’s thought that Trump’s policies will result in “later but faster” rate hikes by the central bank, and the prospect of a faster pace of rate hiking would hit South Africa in particular, said Attard Montalto. Rand volatility throughout this period should prevent the South African Reserve Bank from cutting rates.
Trump has suggested scrapping the Dodd-Frank Act, brought in to avoid a repeat of the 2008 financial crash, and has advocated a temporary suspension of all new financial regulation.
“Reducing regulatory compliance costs would support US banks’ profitability but threatens to chip away at the credit benefits of the Act — the strengthening of banks’ balance sheets and reduced risk-taking,” Moody’s said.
Trump also wants to repeal the Affordable Care Act, aka Obamacare. This would be a positive for US health insurers in the long term, but an increase in uninsured citizens will be bad for healthcare service providers and medical device suppliers and will have a mixed outcome for pharmaceutical companies, Moody’s said.
Trump wants a tighter grip on immigration to increase employment among US citizens.
“His proposals would reduce the applicant pool for companies in sectors including technology, automotive and aerospace, and raise employment costs,” Moody’s said, adding that US universities would see declines in foreign student enrolment and revenues if reforms discouraged applicants.
He has also proposed lowering corporate tax rates, which he said would neutralise the benefits of holding cash overseas. “Broadly speaking, lower corporate taxes are credit positive because of the net effect of higher cash flows,” said Moody’s.
But the main beneficiaries of his tax cuts would be the very rich, said self-styled Marxist economist Michael Roberts. “Under Trump, most people would see their income tax bill reduce by about 7%, but savings for the top 1% would be about 19% of their income. To balance the federal budget, government spending would have to be cut by about 20%, hitting welfare, education and health.”
Lings said there were checks and balances that would hamstring Trump’s ambitions and the US Constitution grants only a few specific powers to the president. He can withdraw from trade policy negotiations, restart exploration on the Keystone pipeline (proposed to run from Canada to Nebraska), sign executive orders to deregulate energy prices and, as he has threatened, open trade cases against China.
“Crucially, the president needs congressional support to implement economic policies and, ultimately, the supreme court has the power to overrule any laws if they are deemed unconstitutional,” said Lings.
Repealing Obamacare, cutting taxes and building a wall along the Mexican border will require approval from Congress. He said the people Trump wants to nominate to government require Senate approval and only Congress has the power to declare war, although the president can send troops without a declaration, or issue an executive order, to undertake military action.
“Using a very simple debt model and assuming Trump got all his fiscal policy proposals approved [a somewhat unrealistic scenario], the US public net debt would increase to above 95% of GDP from about 75% currently,” Lings said.