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President Donald Trump: Implications for investors and Australia


Donald Trump’s election as President of the United States risks ushering in a period of policy uncertainty which could cause further share market weakness in the short term.

 

After a seemingly long and difficult campaign Donald Trump has been elected president of the United States with the Republican Party retaining control of the House, and the Senate, in Congress. Just as we saw with the Brexit vote, the combination of rising inequality, stagnant middle incomes and the disenchantment of white non-college educated males has seen a backlash against the establishment and helped deliver victory for Trump. This video looks at the implications.

Trump's key policies

Taxation: Trump promises significant personal tax cuts including a cut in the top marginal tax rate to 33% from 39%, a cut in the corporate tax rate to 15% from as high as 39% and the removal of estate tax.

Infrastructure: Trump wants to increase infrastructure spending.

Government spending: Trump wants to reduce non-defence discretionary spending by 1% a year (the “penny plan”), but increase spending on defence and veterans.

Budget deficit: Trump’s policies are likely to lead to a higher budget deficit and public debt.

Trade: Trump wants to renegotiate free trade agreements and has proposed various protectionist policies, eg; a 45% tariff on Chinese goods, 35% on Mexican goods.

Regulation: Trump generally wants to reduce industry regulation, which would be good for financials and energy.

Immigration: Trump wants to build a wall with Mexico, deport 11 million illegal immigrants, put a ban on Muslims entering the US and require firms to hire Americans first.

Healthcare: Trump wants to repeal Obamacare and allow the importation of foreign drugs.

Foreign policy: Trump wants to reposition alliances to put "America first" and get allies to pay more, would confront China over the South China Sea and would bomb oil fields under IS control.

Concluding comments

While Trump’s victory will come as a bit of a shock to many, there is a good chance that economic realities and the checks and balances provided by Congress will see his policies become more pragmatic. A good initial guide to this will be what sort of advisers Trump appoints around him. And remember there was much concern a Yes Brexit vote would be a disaster for shares and the global economy. What actually happened was an initial knee jerk sell off but after a few days global markets moved on to focus on other things and shares rallied. So there is a danger in making too much of the US election.

It’s also worth noting that recent global growth indicators have been improving – both business conditions PMIs and profit indicators – and this along with continuing ultra-easy global monetary policy provides support for investment markets in the face of short term political uncertainties.

Finally, while the Presidential election is an important political event, investors should remain focused on adhering to their financial objectives, ensuring that their portfolios are well diversified across asset classes and geographies, and continuing to take a long-term view.

 

About the author
Shane Oliver, Head of Investment Strategy and Economics and Chief Economist at AMP Capital is responsible for AMP Capital's diversified investment funds. He also provides economic forecasts and analysis of key variables and issues affecting, or likely to affect, all asset markets.
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