It’s a good thing for Donald Trump that Canadians don’t get to vote in the usa. Apparently, we do not like him very much.
A recent poll from Nanos, which asked Canadians which presidential candidate would be best for Canada’s interests, shows that a proper plurality (37 per cent) would prefer Democratic front-runner Hillary Clinton to become the following POTUS. We’re able to even accept Bernie Sanders, who came in with 26 per cent support. However the Donald? Only seven percent people want him to be the most powerful man on the planet (assuming he isn’t already).
Now, I am quite sure Mr. Trump would not be ruffled by this news. He’s bigger-than-life, brash and bombastic – hardly cherished personality attributes among Canadians.
Yet with a big win on Super Tuesday, Trump has moved one step nearer to the Oval Office. So it may be worthwhile, as investors, to put aside our “we’re too nice to love this guy” prejudice for a minute and ask what a Trump presidency might mean – if, as president, he manages to do everything he states he’s going to do.
As conjecture goes, this really is in itself a bit of a challenge, because Trump’s policy platform is hardly coherent, not to mention comprehensive. What’s employed by him among Republican voters is his anger, his frankness and the celebrity. Who knows what he would do (or not do) within the big chair?
But for the moment, let’s pretend President Trump makes good on his inchoate promises.
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One from the issues Trump talks about most is trade – or, rather, how the Usa is routinely getting screwed by China (his favoured whipping-boy) and others due to the current administration’s gutlessness.
The Trump strategy on China will be a difficult negotiator – to show “leadership and strength in the negotiating table,” based on his website, donaldjtrump.com. By not taking any guff from Beijing, Trump will repatriate jobs, open Chinese markets and “make America great again.”
Trump insists this is about accountability, not protectionism, and perhaps he’s sincere. But with other ears – notably, the ones from the Chinese – this would sound like a trade war.
For the American economy, a trade war with China would have a few obvious downsides. You might be more expensive imported goods. China is America’s largest trading partner, and also the latter imported up to 50 % a trillion dollars’ worth of Chinese stuff in 2015. Trump’s right concerning the trade deficit – the U.S. exported US$116 billion last year – but China doesn’t sell what America doesn’t buy. About US$225 billion of Chinese consumer goods end up on U.S. store shelves each year. If tensions over trade with China escalate into tariffs and import restrictions, then consumers – who take into account two-thirds of U.S. business activities – covers it.
So might corporate America, which is increasingly global in its activities. U.S. companies with large interests in China – names like GE, Disney and Starbucks – might take a hit, not just from trade restrictions but also in the reputational impact of just being American. That would hurt corporate revenues, as well as shareholders.
Hand in hand with Trump’s tough talk on trade is the other big plank in his platform: immigration, in other words illegal immigration. President Trump would thicken the border with Mexico to help keep out illegals, and kick out those already in the States.
In theory, it’s difficult to argue against cracking down on criminal activity. But there’s theory, and then there’s practicality. The practicality is that illegal immigrants are an essential source of labour for that Usa, and often fill jobs Americans won’t take. Additionally they provide interest in products or services just like everybody else, there are lots of them – nearly 12 million – though not all from Mexico. Kicking them out wouldn’t simply be a logistical impossibility, but additionally bad for the economy.
These ideas is possibly part-and-parcel to wider restrictions on trade. Trump intends to use the U.S.-Mexico trade deficit as ammunition in negotiations on immigration. If that’s the case, that could create similar challenges as his China stance, maybe even worse.
The U.S. exports heavily to the southern neighbour: 2015 total exports to Mexico were nearly twice those to China. In important industries (like automotive), Mexican goods feed American manufacturing. Any disruption to that close relationship could mean higher costs for companies as well as for consumers.
On a less troubling note, Trump has also vowed to cut corporate and personal taxes and simplify the tax code. The U.S. currently has among the highest corporate tax rates in the developed world, but the system is rife with loopholes. Trump would close them – one of the reasons he claims his reforms would be revenue neutral.
This isn’t a bad idea, in itself. Tax cuts provide stimulus, which may or might not be needed. But the trouble comes with actually setting it up done. For these measures, Trump would want strong support in Congress C something which is far from assured, especially given the fractures within the Republican party. There are practical issues. If you think Barack Obama were built with a hard time with healthcare reform, take into account that Wolten Kluwers’ CCH Standard Federal Tax Reporter, a compilation of U.S. federal tax regulations, has become nearly 75,000 many pages.
The same goes, by the way, for a lot of of Trump’s ideas: some are clearly unworkable. For instance, his plan to develop a wall against illegal immigrants from Mexico involves getting Mexico to pay for it. That seems, um, unlikely.
That’s why investors should probably not get too riled up about a Trump presidency, a minimum of not for the time being. Selling Mexico or China (if you have exposure there) or betting against the U.S. economy would probably be premature.
After all, campaign promises are fleeting. They have a tendency to evaporate when presidents are confronted with the day-to-day realities of overseeing the world’s largest economy. President Trump would no doubt discover that a much more daunting challenge than winning Super Tuesday.