Last November, financial markets worldwide braced themselves as Donald Trump barged his way into the Oval Office, using not much more than braggadocious remarks and a deep wallet. Despite the initial 7% drop in US equities, things picked up as Mr. Trump introduced his promised measures. Now though, nearly one year in, how are the markets and economy reacting to Trump’s business approach to running a country?
Let’s begin with the Federal Budget, which currently stands at a deficit of 4.5%. As a self-proclaimed ‘VERY successful businessman’, he should know that this deficit hardly seems sustainable. The forecasts are even more dire, with the deficit expected to increase to above 7% by 2020. In comparison to Obama, Trump’s budget deficit stands at 33.7% higher. How could Trump manage to get it so wrong amidst a strong, stable US economic backdrop? Perhaps electing a business tycoon to the White House wasn’t such a good idea.
Moving on to his trade policies, which have been mired in controversy since his run for President, we find more evidence that implies markets’ dislike of ‘The Donald’ approach. His initial tariffs of 25% on $50 billion worth of Chinese imports seemed harsh enough, but he recently proposed a further tariff on the remaining imports, valued at some $257 billion. China retaliated to the first batch of tariffs by imposing tariffs of its own on US imports. On 30 October, when news of these tariffs broke, the Dow Jones Industrial Average fell over 100 points at the mere inclination at a trade barrier; how the markets will react if they come in place will be much more consequential. This can already be seen in the US soybean exports to China, or rather, the lack thereof. This once booming US export, worth over $11 billion and the third largest US export to China, has been almost completely erased since Trump arrived on the scene. China simply swapped from US imports to Brazilian and Argentinian ones, leaving Trump chasing his tail.
Lastly, let’s examine Fed rates. With Trump initially accepting expert advice, rate changes were minor and stable. Now that interest rates are being raised, something Trump once supported, he has become critical. This confusion and uncertainty are harming the US stock markets, sending investors scattering. Perhaps Trump has come to the realisation that higher interest rates will harm his property empire, and is now using his position to put in place measures that will make his business interests more profitable once he is no longer President.
Why is this trend of business officials migrating into politics gaining speed? We see Minister of Finance Paschal Donohoe doing a fantastic job on the 2019 Budget, all with only €800 million to play with. Meanwhile, the UK is facing Brexit, yet still, manage to have a budget surplus of £2bn. Let’s leave the politics to the politicians for a while, shall we? That seems to be working just fine.
By Alex Lohier – Law Writer