Once again, the polls and the prognosticators got it wrong and, once again, the reaction has been turmoil. The financial markets were convinced that the election would be a narrow victory for democrat Hillary Clinton, but as the races in the battleground states went to republican Donald Trump, it became obvious that this was going to be an upset win for the latter.
At this point, there is very little known about what a Trump presidency will mean, as this was a campaign very light on talk of policy specifics. Markets expressed great concerns initially, but then stabilized for a time. Either way, it is going to take a while for everyone to digest a result that surprised most analysts.
It is assumed that part of the Trump administration plan will be an aggressive attack on trade. Stocks that took the biggest hits were those that are engaged in exports. During the campaign, there were promises to eliminate existing trade deals, such as NAFTA (North American Free Trade Agreement). This leaves virtually no chance that newer proposals, like the Trans-Pacific Partnership, will ever see the light of day. There was also talk of establishing high tariffs on imported goods, especially those from China. If that materializes, it could impair U.S. businesses from many export opportunities.
The Trump win also could influence Federal Reserve interest rate decisions. The expectation was that rates would rise again in December, but now all bets are off. Given Trump’s likely appointments, the Fed may find itself preoccupied with its own survival and playing a reduced role as economic stimulator as a result.
As for Trump’s economic plans, they were largely assailed during summer analyses by economists as a path to recession in the U.S. and even for the global economy. Moody’s Analytics, for example, predicted it would shrink the domestic growth to 0.6% from 2%, although there would likely be a small reduction in unemployment along with it.
Traditionally, much that is said in any campaign is abandoned once the real governing starts—pragmatism takes over. But there has been little about this campaign that could be described as traditional. It remains to be seen how these issues really play out. How the new administration actually addresses trade will be the first signal.
The U.S. is as divided as it has been in generations, which can perhaps be said about most every nation in the world. There are many interpretations of this phenomenon, but at the heart of most of this has been the issue of change. Broadly speaking, the people who have been supporting the Trump vision do not like the changes that have taken place in the world. Those voters, often older, have seen their jobs go to robots and overseas workers and want the old system back. This split may be reaching its peak simply due to demographics. The Millennial population will be the dominant political force for the next 35 years, but they have only barely started to play a role. The eventual transition from one to the other, like it has been in parts of Europe, could be extremely ugly.
– Chris Kuehl, Ph.D., NACM economist