Where does America go from here – what are Trump’s policies and how will they affect the economy?

14/11/2016

| 14-11-2016 | Lionel Pavey |

photo-1432164245265-ab19a48c3d09Infrastructure – a massive investment programme (a trillion dollar rebuilding programme).Trade – renegotiating NAFTA, opposition to TTP AND TTIP. Increase in tariffs on Chinese goods. Taxes – reduce and simplify taxes for individuals. Reduce corporate tax to 15%. Repatriate corporate cash held overseas with a one off 10% tax and then close all the existing loopholes. Spending – increase in Defence spending. Reduce current Government spending through efficiencies. Economy – increase annual GDP growth to 4%.

So how does it add up?

Investment in infrastructure is a positive – it leads to extra jobs and improvements in the country. Taking a more restrictive stance on trade treaties, whilst protecting America, could lead a reciprocal trade wars. Simplification and reduction in direct taxes will increase wealth and should lead to higher expenditure. Would be perfect if that money was used to buy American goods. Increasing annual GDP by 4% is very ambitious – has rarely been achieved in the last 40 – 50 years.

These policies would lead to a large increase to the Budget deficit – it would be a huge risk to expect increases in American productivity to be more than enough to cover the gap. We could expect to see interest rate rise, though the market was already expecting that.Trade wars would have a negative effect on the dollar.

The big problem is that Trump is a “known unknown”, a maverick and not someone that can be easily read by political experts.

If his actual stance is as strong as his political campaign then there could be serious consequences for global growth and trade. Interest rates will rise and the dollar will be volatile for the foreseeable future, and things will change. Whether it leads to improved growth in Europe – we shall have to wait and see.

Lionel PaveyLionel Pavey – Cash Management & Treasury Specialist

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