November 11th, 2016
The global surprise at Donald Trump’s successful bid to become the next president of the United States has led to much speculation of where this now leaves the rest of the world, in terms of diplomatic relations, but as much with regards to the affect the win could have on the global economic outlook. Mr Trump led a campaign littered with divisive, some would say inflammatory, statements of intent for how he would lead the US if he were to be elected. Now, the question is just how many of these policies will become reality and just what could be in store for the rest of the world?
Many news outlets have focused on the direct impact the result could have for the US’s relations with Mexico and China. Much has been made of Trump’s comments regarding the risk that the current border access between Mexico and the US has for the country, so it is not a major surprise that the neighbours to the south have the most to fear.
Talk of rounding up immigrants and shutting out blue collar workers from US manufacturing jobs was a key message that the president elect espoused during his campaign, so it seems to be highly probable that Trump will need to follow through with some of the promises made. Whether he will be able to build his fabled wall is another matter entirely.
The expected attitude towards China is also another point that has been debated since the election result. Trump clearly stated on several occasions that he would move forwards with plans to instruct the US Treasury secretary to brand the country a currency manipulator, a risky move which would be likely to raise tensions between two of the world’s economic superpowers. Trump even went as far to state during his campaign that he would potentially impose a 45% tariff on Chinese imports into the United States, to provide stimulus to competing US firms.
If that proposal bore fruit, it would present a considerable problem for China. At present, the US is the largest importer for Chinese goods, so this decision would be likely to considerably reduce the level of the growth for the country and mean that manufacturing roles becoming at risk. While China could tackle this move by promising to invest in the US economy, in an act of attrition to Mr Trump, it is more likely that China would use its own powers to push back.
China has amassed a considerable level of US Treasury bonds since relations have been profitable for both nations, so could choose to unceremoniously sell off the stock to directly impact the growth of the US economy. In addition, the Chinese could follow a similar stance to the US by dramatically increasing their own tariffs for US exports.
The UK will certainly not be shielded from the impact of Trump’s rise to power. The US is currently the largest importer of UK services in the world, so the chances of the change in leadership not impacting the growth of the UK economy is slim. However, given that Trump’s plan is to change the face of America’s manufacturing industry, this will have very little effect on the type of trade conducted between our countries.
Perhaps most heartening for the Prime Minister Theresa May is that the president elect has maintained a stance that the UK the first to benefit from a renegotiation of trade arrangements once he comes to power. This would potentially benefit the government’s attempts to strike new trade agreements with other nations, particularly Europe, as striking terms with such a decisive figure would be a feather in the cap for the Prime Minister.
Expectations are that the change of leadership will benefit the pound, given the hammering it has taken since the result of the referendum. The dollar has performed strongly against the pound in recent months, due to the uncertainty that the result has created. But it is expected that a reverse swing could occur, as the US looks to strengthen relations with key trading partners, during a period of equal uncertainty and risk.
The rest of Europe may not be as likely to benefit from a change in leadership. From a political stand point, many of the key players in Europe face important elections in 2017, which are likely to change the face of the political landscape for many countries. Given the rise in support for right wing parties in Germany, the Netherlands and France in recent times, concerns are that the methods used by Trump could be incorporated by these parties to secure a favourable result for themselves.
Europe would also face a weakening economy, given that there is a considerable reliance on import and export arrangements with the US. The euro is also predicted to feel the effects of a weaker dollar, as this will force up prices across the board. While the financial markets appear to have relaxed over the past two days, after the sudden spike in the markets after the result was announced, it is feared in some quarters that time will tell whether Europe can accept Trumps appointment as a change in fortunes.
Article by: Amy Adams, Marketing Executive at Contractor Mortgages Made Easy
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