Decoding the Stars & Stripes

3 min read

The US Presidential election is inescapable. And our eyes are glued to the screens. With less than a week to go, most early voters and polls favour Clinton but anything could happen in the final moments. The FBI is investigating Clinton’s emails while Trump continues to broadcast his views of a rigged election and is threatening to build a Mexican wall. 

How did we get here – the Trump card

Globalisation and deregulation has boosted economic activity across the globe but the rewards have not been evenly distributed and inequality has increased. In the US, real income has stagnated for most people since the 1980s, while the wealthiest 10% of households have doubled their real income (source: Datastream). Since the Global Financial Crisis, it has been harder for people to borrow money – and therefore made it more difficult for those with low incomes to maintain basic household needs.

Trump speaks to a frustrated section of the US – playing on their fears and hopes – and it’s been a successful strategy for him. He’s not the only one who has benefited from this. This is a global trend which has seen the rise of Nigel Farage (UKIP in the UK) and Beppe Grillo (the Five Star Movement in Italy).

Sifting through the locker room talk

You’d be forgiven for missing the policies each candidate stands for so we’ve listed a few below:

Clinton

Trump

Tax

Increase taxes for those making over $5million with a 4% surtax.

Higher tax breaks for healthcare and education spending for middle-class families.

Reduce the number of tax brackets from 7 to 3.

Reduce corporate taxes.

Eliminate estate tax.

Increase the standard deduction for individual filers.

Job creation

Investment in advanced manufacturing, technology, renewable energy and small business.

Increases in employment training.

Reduction of the US corporate tax rate to 15% from current rate of 35%.

Investment in infrastructure, cutting the trade deficit, lowering taxes and removing regulations.

Immigration

Comprehensive immigration reform including means for undocumented residents to obtain permanent legal residency and potentially citizenship.

Opposes  privately run detention facilities.

Call for an increase in the number of Syrian refugees to be resettled in the US.

A 2,000+ mile US-Mexico border wall.

Reductions in legal immigration with more stringent efforts to reduce numbers of migrants in the US.

Extreme vetting of refugees from the Middle East.

Foreign policy

Expanded role in fighting ISIS in Syria.

Support arming Kurdish peshmerga fighters.

Continued military presence in Afghanistan.

Criticises military action in the Middle East.

Closer relationship with Russia.

Calls for allies in Europe and Asia to contribute a greater share towards the costs of national defense.

Hardline stance to combating ISIS.

Trade deals

Oppose the Trans-Pacific Partnership and Central American Free Trade Agreement in their current format.

Protectionist stance. Against the Trans-Pacific partnership and plans to reopen negotiations on already signed pacts.

Gun laws

Support for tighter background checks and a ban on assault weapons.

No changes to the gun laws.

Source: BBC News

What does this mean for us?

The fascination with the ‘dramady’ that is this year’s US Presidential election is more than entertainment. The US continues to heavily influence global economies and we are also a firm ally. Here are a few things to consider for Australia.

  1. The US is Australia’s third biggest export market after China and Japan, so any review of trade agreements like the Trans-Pacific Partnership may impact on Australian exports. China is also a heavy exporter to the US and any impact to its production will affect Australia too.
     
  2. Trump’s plan to make allies pay more of their share of defense could see the Australian defense budget double and draw spend away from other much needed government services.
     
  3. The Asian region may be destabilised with the Philippine President already announcing separation from the US and the potential for US defense to be reduced in the region under Trump.

An invested outcome

Clinton mostly represents the status quo, with expansions of policies like Obamacare. Trump is more of a wild card. But it’s worth remembering in all the panic that US Presidents aren’t always able to follow through with their proposals in office for a variety of reasons – in particular judicial and congressional limits. This was the case for many of President Obama’s policies.

Aside from that though, there are a few things to consider for investments and there is likely to be some initial volatility, regardless of the result.

  • Bonds tend to benefit initially from investors seeking safer assets.
     
  • Trump’s policies and the potential for the US Federal Reserve to increase interest rates may mean in an increase in the US dollar – interest rates are still likely to rise under Clinton.
     
  • Most commodities may suffer from a higher US dollar – though gold may increase in value from the uncertain environment.
     
  • Uncertainty may create short-term volatility in share markets but longer-term activity will depend on the policies implemented post the US election. 

Conclusion

Either outcome has the potential to see some short-term volatility in investment markets, but there is a large range for potential longer term consequences, particularly in the case of a Trump presidency. The rise of Trump is part of the global trend towards greater political instability. Even Australia is not exempt if you consider the close and delayed results of the recent Federal Election. Elections are likely to have greater influence on investment markets and investors will need to manage the uncertainty of these in their portfolios.

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For more information on the impact of the US Election on your investments, please contact your financial adviser.

This document has been created by Westpac Financial Services Limited (ABN 20 000 241 127, AFSL 233716). It provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such. This information has been prepared without taking account of your objectives, financial situation or needs. Because of this, you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. Projections given above are predicative in character. Whilst every effort has been taken to ensure that the assumptions on which the projections are based are reasonable, the projections may be based on incorrect assumptions or may not take into account known or unknown risks and uncertainties. The results ultimately achieved may differ materially from these projections. Information in this document that has been provided by third parties has not been independently verified and Westpac Financial Services Limited is not in any way responsible for such information. Past performance is not a reliable indicator of future performance.

Information current as at 1 November 2016. © Westpac Financial Services Limited 2016.

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