Republican candidate Donald Trump was elected as the next US president on 9 November. His rival, Democrat Hillary Clinton, conceded the election overnight shortly after losing the pivotal state of Pennsylvania. Narrow margins separated the two candidates in many states, as well as in the nationwide vote, underscoring the polarisation of the electorate after a lengthy and often divisive campaign. Due in part to Trump’s strong showing, Republicans also retained a slim majority in the US Senate (upper house), as well as a strong majority in the House of Representatives (lower house).
Trump’s successful campaign leveraged the anti-establishment, populist trend in Western politics, which previously was revealed in the UK’s ‘Brexit’ referendum and the near-failure of the EU-Canada trade pact. It expressed the US’s underlying nationalist and isolationist tendencies – particularly concerns about immigration and trade – and may close a 25-year period of liberal internationalism in US foreign policy.
However, unlike Clinton, Trump did not comprehensively outline his domestic and foreign policies. As a result, there is considerable uncertainty about which policies he will pursue in office, and how aggressively he will do so. Based on the campaign, and the key issues in the global landscape, this note outlines six things companies need to know in the wake of the historic 2016 US presidential election.
Issue 1: Trade disputes
Position - Trump spoke of imposing unilateral tariffs on major trading partners, such as China and Mexico, to obtain more favourable terms of trade and strengthen US manufacturing.
Trump also opposes new trade agreements and favours renegotiating existing trade agreements, such as NAFTA.
Implications - Economic analyses of Trump’s suggested tariffs broadly conclude that they would have a strong negative impact on both the US and global economies, including as a result of retaliation by trade partners.
In addition, Trump’s election effectively kills pending and prospective trade and investment agreements, including TPP with Asia and TTIP with the EU.
Outlook - Given existing executive and legislative authorities, the threat of unilateral tariffs is plausible. In addition, Trump’s ‘Rust Belt’ constituency will demand prompt action on trade.
However, the potential negative economic consequences of a major trade dispute, as well as the high potential for spillover into other foreign policy areas, will militate against an abrupt hike in US import tariffs and the campaign rhetoric may be more about establishing a negotiating position.
Issue 2: Iran nuclear deal
Position - Trump has strongly criticised the deal – the Joint Comprehensive Plan of Action (JCPOA) – as overly generous to Iran, and pledged to terminate it upon entering office.
In general, Trump has avowed that the US – in alignment with Israel and Saudi Arabia – will take a harder line on Iran. However, he has also alienated Middle Eastern allies through calls to restrict Muslim immigration, as well as demands of compensation for US security assistance.
Implications - Residual US sanctions continue to temper foreign investor interest in Iran; an active threat to the overall JCPOA would further undermine investor sentiment.
Unilateral US action would be unlikely to be followed by the EU or other countries involved in the JCPOA, which have pursued economic opportunities in Iran.
The breakdown of the deal would aggravate regional and sectarian tensions, including proxy conflicts in Syria and Yemen. By increasing regional conflict risk, it would add a premium to global oil prices.
Outlook - Implementation and maintenance of the JCPOA depends on the US upholding commitments to lift sanctions (recognising the limitations imposed by Congress).
As a result, Trump could plausibly seek to scupper the deal by imposing new executive sanctions, triggering a formal JCPOA dispute, or forcing a confrontation with Iran.
However, the JCPOA also depends on Iran’s own willingness to uphold its nuclear-related commitments. US sanctions do not necessarily imply re-nuclearisation as Iran courts foreign investment.
Issue 3: US alliances
Position - Trump embraced a nationalist, isolationist, and transactional foreign policy. It revolved in part around securing adequate compensation to maintain US military deployments abroad.
In addition, while Trump advocates a more confrontational posture towards China on trade, he has signalled a greater willingness to tolerate Chinese and Russian regional ‘spheres of influence’.
Implications - A more nationalist and isolationist US will create further space for rising powers to develop diplomatic, military and economic influence worldwide.
This will advance the trend in towards balancing US dependence with new relationships, including with Russia and China (particularly in terms of defence procurement).
Outlook - Trump’s willingness to question US security guarantees during the campaign alarmed NATO, East Asian and Middle Eastern allies.
However, there are very strong political, economic, institutional and security incentives weighing against US abrogation of such relationships. Again, the rhetoric may turn out to be more about creating a negotiating position.
Furthermore, allies are likely to accommodate themselves to the more transactional US posture, rather than risk the collapse of alliances.
Issue 4: Syria, Iraq, and Islamic State (IS)
Position - Trump supports US military operations against Islamic State (IS) in Iraq and Syria. However, he appears to oppose expanding US military assistance to Syrian rebel groups, including by the imposition of a no-fly zone.
During the campaign, he also suggested closer counter-terrorism cooperation with Russia against IS and other groups.
Implications - As a result of continued US and Western military intervention, IS and other transnational terrorist groups are likely to maintain high intent to carry out attacks against the US, as well as its interests abroad.
Closer US cooperation with Russia against IS and other militant groups could facilitate a more durable political settlement to the Syrian conflict, potentially at the expense of relations with Gulf allies.
Outlook - Trump will inherit and continue to prosecute offensives against IS strongholds Mosul (Iraq) and Raqqa (Syria). The US military is likely to maintain a significant footprint in the region in support of the counter-IS mission.
More generally, he is likely to maintain the US’s robust counter-terrorism operations worldwide, which expanded substantially under the Obama administration.
Issue 5: Energy and climate change
Position - Trump has stated that he would withdraw from the UN climate accord, which went into effect in October.
He has also stated that he would reverse the Obama administration’s domestic regulation of emissions, coal power, and oil and gas extraction.
Implications - Obama’s emissions and energy regulations – in the absence of legislation – constitute the US’s voluntary contribution to climate change mitigation.
Termination of these regulations would substantially reduce if not eliminate the incentives for other major emitters – particularly India and China – to uphold their own climate change commitments.
While less regulation would benefit US fossil fuels, the impairment or collapse of the UN climate accord would inject significant instability into the market for ‘green technology’.
Outlook - Formal withdrawal from the UN climate accord would take at least three years, and may not be completed during Trump’s first term even if triggered immediately.
However, Trump could undo most of the Obama administration’s environmental regulation through executive authority.
In addition, Trump’s federal court nominations – if not obstructed by Senate Democrats – would help uphold these decisions.
Issue 6: Russia
Position - Trump was relatively friendly to Russia during the campaign, despite government intelligence assessments that it sought to interfere in the election by hacking the Democratic Party.
Implications - Warmer US-Russia ties may not eliminate sanctions risk (particularly targeted sanctions related to Crimea).
In addition, they would be unlikely to be followed by the EU (which also accuses Russia of regional political interference).
Moreover, Russia’s business environment will remain a deterrent to many investors.
Outlook - Trump could help broker a rapprochement with Russia, facilitated – for example – by cooperation against Islamic State (IS) in Syria.
This could include the relaxation or lifting of US financial and sectoral sanctions related to the conflict in Ukraine.