US election – the outcome and implications for the UK economy
by Alexander Beard, on Dec 19, 2016 10:18:15 AM
With Republican candidate Donald Trump defying both the polls and expectations across the globe and convincingly winning the US election over Democrat candidate Hillary Clinton, 2016 will undoubtedly go down as the year of the political upset. The US dollar took a considerable hit after Trump’s victory was confirmed, but bounced back to a thirteen-year high just over a week after election day as investors predicted rates being raised more quickly by the Federal Reserve once the President-elect is inaugurated on 20th January next year.
The impact for the US is set to be a major shift in economic policy as the government budget looks to stimulate the economy with an increase in spending on infrastructure and cuts to taxes. This, in turn, could take the pressure off the Federal Reserve in supporting economic recovery and a return to normal interest rates sooner than expected.
But what about the effect of Trump’s presidency on the global economy? Many countries are already steeling themselves for the potential impact of his time in the Oval Office. Mexico is potentially the nation set to suffer more than any other, as the President-elect has threatened tariffs of 35% on some Mexican imports and vowed to either renegotiate the North American Free Trade Agreement (NAFTA) or pull the US out of it altogether. China also looks set to lose out, with proposed tariffs of 45% on Chinese imports and Trump planning to bring cases to the World Trade Organisation against Beijing.
Closer to home, the impact on Europe is likely to be more political than economic, although both the weaker dollar pushing the euro up and the possibility of a more restrictive trade regime with the US could impact upon the eurozone’s reliance on exports as a source of growth. In the short term, the financial markets staying calm following the election result is a positive European banks will gladly take.
The outlook for the UK economy during Trump’s presidency also looks good. There is no evidence to suggest that the Republican will make things more difficult for UK firms, and he has also suggested that the UK will be first in line for a new trade deal. This in turn would help Theresa May to show that post-Brexit Britain is able to strike its own trade deals, strengthening her bargaining position with the EU. From a short term perspective, the election result takes pressure off the pound, with the uncertainty following a Trump victory providing a level of balance to the uncertainty in the UK as the country prepares for its EU exit.