Donald Trump’s promise to put America first helped propel him to the U.S. presidency. But he also unleashed uncertainty on the global economy by skewering trading partners and offering few specifics that might calm allies or businesses.
Financial markets reacted quickly and negatively to the unknowns of a Trump stewardship of the world’s largest economy. By Wednesday afternoon, though, stocks had rebounded, especially those involving drug companies, defence contractors and firms that rebuild infrastructure, which could benefit from a Trump administration.
Many analysts asked: Will — or can —Trump shed his aggressive rhetoric?
“We simply can’t know what type of president Trump will be,” said Paul Ashworth, chief U.S. economist for Capital Economics.
Trump had campaigned by vowing to rip up trade deals he deems unfavourable. He promised penalties for U.S. companies that offshore factory jobs. He would label China a currency manipulator. He would repeal President Barack Obama’s health care law.
He staked his credibility on erecting a wall along the Mexican border and limiting immigration — ideas that connected with a mainly white working class that’s felt abandoned by political leaders.
The president-elect has promised to spur growth with a roughly $6 billion tax cut over the next decade. It’s a policy that could help the U.S. economy but also cause its national debt to jump, according to economists. Trump would also use tax credits to fund infrastructure projects, saying he could deliver $1 trillion in investment over 10 years.
“Mr. Trump has proposed tax cuts and deregulation,” said Brian Wesbury, chief economist at First Trust Portfolios. “That’s not a bad start. We have never seen a tax cut we don’t appreciate.”
Analysts at Credit Suisse noted that Trump “will learn quickly the power of his new pulpit” as the markets respond to his pronouncements.
“This morning’s rally in infrastructure-related investments has demonstrated that the market will react to any specifics it hears,” analysts at the Swiss bank concluded.
Yet Trump has provided so few fleshed-out policy details that he fostered the impression of a White House that would be run largely on his instincts. For some investors and analysts, that approach has left a sense of unease about the possible direction of the U.S. economy under his watch.
Among other things, Trump has floated the idea of neglecting the national debt to negotiate for better terms. He argued that he can boost growth by cutting taxes for the wealthy, slashing regulations and reducing the country’s dependence on imports.
The flip side, according to the Committee for a Responsible Federal Budget, is that Trump’s plans would raise the national debt by $5.3 trillion over 10 years. This would be on top of the $9 trillion that the national debt is already projected to rise by the Congressional Budget Office. The increase in debt risks making it more expensive for the United States to borrow.
Trump has insisted that the U.S. economy can grow nearly 4 per cent a year — roughly double its current pace. The Federal Reserve has estimated that growth will average below 2 per cent. (During his campaign, Trump attacked the U.S. central bank as a pawn of Obama.)
Even his tax plans have raised questions about whether single parents might face a higher tax burden while the wealthy enjoy sizable savings. The top 1 per cent of earners would receive, on average, a tax cut of $214,690 in 2017, according to the Tax Policy Center. Those in the top 0.1 per cent would enjoy a tax cut of more than $1 million.
“Taking Trump’s campaign rhetoric at face value, there is reason to believe that the policies he supports could push the U.S. into a recession and could create wider contagion,” said Megan Greene, chief economist at Manulife Asset Management.
The one certainty is that Trump “will face fewer obstacles in pushing through his agenda” because of the Republican majorities in both the House and Senate, Greene said.
Uncertainty itself carries risks to the global economy and has been one factor in slowing growth since the 2008 financial crisis and Great Recession. It can make businesses and government postpone spending on new plants, infrastructure and jobs.
Key trading partners appear nervous, though their anxieties might appear to be vindication for Trump voters who oppose globalization.
Ulrich Grillo, head of the Federation of German Industries, said that “Donald Trump would be well-advised not to seal off the U.S. economy from the world. Otherwise, the lack of clarity about the future course will lead to significant negative effects for the world economy.”
The United States is a major market for German companies like BMW and Daimler. By one estimate, 1.5 million jobs depend on exports to the United States, the country’s biggest trading partner.
U.S. import barriers could especially hurt economies such as China and South Korea as they grapple with slowing growth. World trade in merchandise will grow this year by only 1.7 per cent, the slowest pace since the financial crisis of 2008-9, according to the World Trade Organization.
In his victory speech, Trump adopted a softer tone but pledged to put U.S. interests first.
“I want to tell the world community that while we will always put America’s interests first, we will deal fairly with everyone,” Trump said. “We will seek common ground, not hostility. Partnership, not conflict.”
An analysis in June by Moody’s Analytics said that if Trump’s proposals on taxes, trade, immigration and government spending were fully adopted, it would slash U.S. economic output and eliminate 3.5 million jobs, leaving the U.S. economy “isolated and diminished.”
Meanwhile, Standard & Poor’s on Wednesday affirmed the country’s credit rating. It said strong U.S. economy and government institutions offset high level of debt and any uncertainty about what kind of economic polices Trump’s administration will pursue.
The rating stands one notch below S&P’s top “AAA” grade, which the U.S. lost in 2011 after a standoff in Congress over whether to raise America’s borrowing limit.
Boak reported from Washington, McDonald from Beijing and McHugh from Berlin. Youkyung Lee in Seoul, Danica Kirka in London and Annabelle Liang in Singapore also contributed to this report.