How has the US presidential election impacted the UK’s economy?

Welcome back readers, to my take on the week’s latest economics news stories. I’m pretty sure you can guess what I’ll be discussing this week. If you haven’t quite sussed it out yet, then pick up a copy of the economist and just look at the dark silhouette of a man printed all over the front page. If you can’t bear to hear that dreaded name again let alone even allow the image of him to engulf your mind, then perhaps you should close this page and continue with what you were doing before opening this page; but if you are keen to understand exactly what America’s latest edition to the Whitehouse could be about to do, and understand what the impacts of his presence are likely to be on a global level, then stay with me. In today’s post, I aim to give a quick summary of what has happened, why it has happened and the implications of this, focussing on Britain towards the end. I will discuss just how America, arguably the world’s most powerful nation, with a population of around 320 million could be lured into voting for such a terrible, racist and arrogant candidate with little respect for women and other ethnic origins. I will look at whether Americans really believe that he can ‘make America great again’ and some of the drastic measures he is looking to impose, for better or for worse; as well as whether he will actually carry out all the promises made in his manifesto. If you have a few minutes to spare give my view on the current situation a quick read and hopefully your understanding of what the outcome actually means will become clearer. As always, please post any comments below and I will try to respond to them. Alternatively you can email them to me at rajveersira@gmail.com.

BREXIT + TRUMPscreen-shot-2016-11-14-at-22-06-31

Perhaps that’s a bit of a hyperbole, nevertheless you get the idea. With brexit creating so much uncertainty in the UK and now hearing that Mr Trump has become president one might question what exactly has happened in the Western World, and for certain 2016 will go down as the year in which the world changed.

Many of us, about a year ago would never have even thought that Donald Trump had even the slightest chance of becoming president of the United States of America. Maybe he had a good idea with the whole apprentice thing in America and perhaps he was an interesting character to watch on TV but can you really imagine that same guy running the United States of America and taking the position of the most powerful man in the world? His attitude towards aspects such as religion, people’s rights and what he believes, resemble rather closely and have roots in Hitler’s inhumane ideology. By making comments such as “I will build a great, great wall on our Southern boarder and I will make Mexico pay for that wall” and that he would call for a “complete ban on all Muslims entering the US” (which has now actually been removed from his website), it seemed almost inevitable that Hilary Clinton would have won without a doubt. With making such comments, you would think that people would turn against him, yet this had almost the opposite effect, so much so that he not only did he win the US presidential election but by quite a substantial number of electoral votes. This gives rise to the idea that even if Trump is completely out of his mind, so many Americans liked his attitude towards society. On the other hand people in the UK were almost laughing that such a candidate, was putting himself forward and it has left many people all over the world including democrats in America, confused, angry and frustrated with the outcome. With absolutely no experience in politics, no idea of what to do in terms of running a country, he seems to be just doing the exact opposite of what would be seen as conventional and somehow people liked this.

Even the famous comedy show “The Simpsons” in an episode 16 years ago predicted that Donald Trump would one day become president of the USA. Who would have thought that it would ever have come true?

So why did everyone like Trump and why did they follow him as if he was a hero?

It puzzles the minds of some of the most intelligent people in the UK and many other countries across the globe as to why such a candidate could be put forward as a candidate, let alone win the election. It’s not even like he has had previous success. His multi-billion dollar empire was largely inherited and it was recently found that he was in a lot of debt and had declared bankruptcy in the past. His character is also not exactly the most charismatic and with so many allegations and claims that he had assaulted a number of women, had made prejudiced remarks to certain members of society, and does not think before his actions, for example when he said 7/11 instead of 9/11 during one of the debates. #Not our president has gone viral and many democrats have been protesting outside Trump towers in New York. In addition on the day of the result, the Canadian immigration website crashed as so many people were desperately trying to leave America.

With no government and political skills or experience it is questionable as to whether he actually knows what he is doing and if he really will burn America to the Ground, like many anti-trump supporters are suggesting.

People want answers as to why he has become the head of the most powerful country in the world in which the rest of the democratic world looks to for leadership. With the most powerful armed forces, special ops and access to nuclear weapons Mr trump really does have the power to start world war 3.

The answer however is not as complex as it may seem. If we look at the correlation between levels of education, poverty and social inequality and the states that voted democratic and republican we can see that there is a actually quite a strong relationship between the two. Many people like with the Brexit result may have voted as a protest, as they wanted to see change in the way a country is being run. Perhaps the answer lies with the fact that with over 200 million people it is hard to understand how America picked these two candidates, supposedly the ones they thought were best for the role of president. Perhaps if a more suitable, stronger candidate for the democrats was chosen then people would not just default to voting Trump.

Nevertheless in todays democratic society nothing can actually be done about the outcome of the election and we must accept what the majority of society has voted.

screen-shot-2016-11-14-at-22-06-18

What is “Trumponomics” all about then?

Figures/predictions taken from: Deloitte webinar Ian Stewart UK chief economist and this week’s economist.

Trump has said a lot of things throughout the campaign and from this we have been able to get an idea of some of the changes he is likely to impose, although it appears as if he has watered down a few of these. Here are a few of his ideas, explained in a simplified, easy to understand way:

  • In terms of trade, Clinton was highly supportive of globalization whereas Trump much more critical of this and is against the idea of free trade. He has said that he will restrict trans pacific (US and Asian nations) trade, and trade with Europe and withdraw from the North American free trade agreement as well as the world trade organization. He also wants to impose tariffs on Mexican imports.
  • He is much more protectionist than Clinton. For those who don’t know what this means, protectionism is defined as government actions and policies that restrict or restrain international trade, often done with the intent of protecting local businesses and jobs from foreign competition (according to Investopedia).
  • Trump has said he in terms of infrastructure he will be spending twice as much Clinton had proposed, leading to a sum of around 500bn. According to the world economic forum America’s infrastructure is quite poor, ranked at 24 for overall quality. The aim: “Transform America’s crumbling infrastructure into a golden opportunity for accelerated economic growth and more rapid productivity gains with a deficit-neutral plan targeting substantial new infrastructure investments”.
  • Substantial government spending will increase the country’s debt. Trump is relying on the infrastructure to create stronger growth in the long term. These are some key elements of Keynesianism, who was very much in favour of governments spending to stimulate growth in an economy.
  • Trump wants immigration to be significantly reduced. He also wants to keep interest rates low.
  • Trump is saying that he will propose aggressive tax cuts. He wants to reduce business tax from 35%-15%, top rate income tax from 39.6-33%, repeal estate tax.
  • Initially he wanted to withdraw from NATO, but later in the campaign he said, “I’m all for NATO”. He also said Obama Care was rubbish, but now it appears he is not scrapping it just yet.
  • Promised to cancel nuclear deal with Iran and is no longer claiming to impose a ban on Muslims.

 

Impacts on the UK in particular:

Source: BBC news

  • US dollar is the global currency. All commodities are purchased in US dollars and thus changes to this will affect world trade.
  • Bad day for psephologists as there was an 86%implied probability that Clinton would win. This affected many betting companies in the UK.
  • Huge cloud of uncertainty covering the world and lots of economic turmoil and uncertainty. This adds to the uncertainty already present in the UK.
  • If UK stock markets, business and consumer confidence were to be dragged down for weeks or even months the Bank of England could make a further small cut in interest rates.
  • But if markets settle as quickly as they have on Wednesday, the Bank of England may decide to hold rates at their current level.
  • UK Prime Minister Theresa May said she was “looking forward to working” with Donald Trump, in a strong “trade, security and defence” partnership.
  • President Obama warned the UK would go to the “back of the queue” for a US trade deal if it voted out. Trump’s proposal is more positive as he himself said it made “no difference” if the UK was in the EU or not.

 

 

Stay tuned to rsira-economics.com with an update of brexit to follow shortly after we here the outcome of the Supreme Court’s intervention in December, and a few book analysis/reviews of the well known, enjoyable economics books: ‘The Undercover Economist’ and ‘Freakonomics’ coming soon. The usual ‘take on the week’ will still be published next week.

 

 

 

 

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