America has demanded change. Donald Trump is US President-elect.
It is a victory that will have far-reaching implications for the global world order and economy. Quite what they shall be is unclear.
With Republicans controlling the House of Representatives and a Senate Majority, it is clear there is an opportunity for a significant change to policy settings. President Obama’s legacy on health reform, free trade agreements and immigration legislation are all in President-elect Trump’s sights, as indicated in his First 100 Days Plan.
How do we make intelligent choices and decisions now when US policy is unclear? Inauguration Day is 20 January 2017. It is useful to look at the key policy approaches identified in the campaign.
Global Trade and Investment
With global trade already sluggish and diminishing, a more inward-looking US runs the risk of further restricting global growth. The US is one of Australia’s largest trading partners and there will be a strong regional effort to keep the US engaged in Asia-Pacific. This is an important opportunity for Australia. We have the relationships and influence to acquit ourselves well in this effort.
President-elect Trump has promised the biggest ‘tax revolution’ since the Reagan era, pledging to cut taxes across the board. He aims to limit the regulatory load on business and reduce the number of US companies moving overseas.
It’s estimated the stimulus package, if it gets through congress, may lift earnings by as much as 20%.
During his campaign, President-elect Trump expressed his desire to reduce the amount of federal bureaucracy – suggesting two regulations should be eliminated for every new one that’s adopted. One piece of legislation that may well be repealed is the Dodd-Frank Act – labelled by the next President as a ‘disaster’. The law, introduced to limit risk following the 2008 financial crisis, has in President-elect Trump’s eyes simply increased costs for business – stunting economic growth.
An infrastructure plan worth $1 trillion has been floated to improve transportation systems. This in turn, it is claimed, will support investments in clean water, power and telecommunications. The reach of these projects will be extended through public-private partnerships. There will be a focus on using American steel. There may be political challenges in financing this plan.
If a Trump Administration does impose tariffs on Chinese imports of the size and scale indicated there will be increased pressure on Chinese outputs. The latest data suggests, however, that China’s trade dependence on the US has declined over the last decade. In an optimistic assessment, perhaps this will provide China with the impetus to look more closely at Australia as an investment option.
The Trans-Pacific Partnership involving countries around the Pacific is seemingly on hold for four years, if not dead in the water. Though this would probably have been the case regardless of who was actually elected – Hillary Clinton had made her feelings on TPP very clear. We will need to focus more closely on the Regional Comprehensive Economic Partnership (RCEP), of which China is a driving force. But does it truly have the transformational economic potential of TPP?
Energy and Environment
The President-elect rejects the evidence around man-made climate change: ‘I believe it goes up and down.’ However, the Trump Administration must stick to the terms of the Paris Agreement or explore how to renounce US adherence. During his first 100 Days, President-elect Trump has pledged to lift restrictions on the production of ‘$50 trillion’ worth of job-producing energy reserves. These include shale, oil, natural gas and coal. He also plans to cancel payments to UN Climate Change programs.
Technology and Telecommunications
The Federal Communications Commission’s Open Internet order is likely to come under consideration. Net neutrality rules – billed as a victory for an open, fair and free internet – could be eased.
This is the first in a series of notes on the US and the new environment we now must face. Our Partners will examine the challenges that lie ahead for our clients across a range of diverse considerations, enabling you and your business to position for the change that lies ahead. It promises to be an intriguing few months.