After a long and bitter campaign for the US presidency, Donald Trump has triumphed over Hillary Clinton and the world’s financial markets have been rocked.
For Trump’s supporters he represents a chance to shake up a system that many Americans feel has increased inequality and squeezed living standards. For less complacent investors, there are worries Trump’s anti-globalisation mantra will spread protectionism around the world, put up trade barriers and curb global economic growth. Furthermore, markets do not like unknowns and with Trump going to the White House they are dealing with a complete newcomer to politics. His administration is widely expected to mark a departure from the policies of his own Republican party as well as the outgoing Democrats.
So what do we know about Trump’s economic policies? We look at the key areas:
Trade
Tapping into economic discontent Trump has argued for protectionism and asserted that decades of free-trade policies were responsible for the collapse of the American manufacturing industry. He has been feeding on the perception among many Americans that globalisation has brought more pain than gain, for example, by bringing cheap consumer goods into the country, costing domestic jobs and depressing wages. Outsourcing of jobs to cheaper markets has also been a concern. Against that backdrop, Trump’s stance on trade is perhaps the clearest of his economic policies.
The billionaire Republican wants to renegotiate, or possibly even scrap, the North American Free Trade Agreement. Nafta lowers trade barriers between the US, Canada and Mexico and was negotiated by George HW Bush and enacted in the 1990s by Bill Clinton. The incoming president wants Nafta to offer a better deal for Americans and has rejected claims by his opponents that the deal has helped the US economy by opening up export markets.
The protectionism with regard to Mexico does not stop there. One of Trump’s most notorious pledges in the presidential campaign was to build a multibillion-dollar wall along the US southern border and force Mexico to pay for it. On the markets on Wednesday fears over the blow to Mthe Mexican economy from Trump’s victory have sent the peso plummeting.
Other global trade deals are also now very much in doubt, notably the Trans Pacific Partnership (TPP), between 12 countries around the Pacific rim, excluding China, and the agreement being negotiated between the US and Europe, known as the Transatlantic Trade and Investment Partnership (TTIP).
Philip Shaw, an economist at the bank Investec, says: “While we are minded to disregard some of Mr Trump’s wilder pre-election rhetoric, we consider that there is a tangible risk that a Trump presidency could fuel anti-globalisation momentum and spark a wave of protectionist policies around the globe. In terms of trade deals, both TTIP and the TPP now look dead in the water.”
Trump has also made his anger with China over trade well known, arguing that since China joined the World Trade Organisation, Americans have witnessed the closure of more than 50,000 factories and the loss of tens of millions of jobs. He wants the US government to label China a “currency manipulator” and has lambasted the rapidly growing Asian economy for “unfair subsidy behaviour”.
Taxes
Here again, Trump has played into frustrations among many Americans over their sense of financial insecurity, inequality and squeezed incomes. Trump, who has faced fierce criticism for appearing to escape paying income tax himself for almost two decades, promised tax cuts for all income groups.
He has pledged “a massive tax reduction” for working and middle-income Americans and has vowed to eliminate income taxes for individuals who earn less than $25,000 annually, or $50,000 for a married couple. He has also said he would “ensure the rich pay their fair share”. But analysis by the conservative Tax Foundation has found Trump’s tax plan would disproportionately help the richest Americans, saving them millions.
Trump has also supported lower corporate taxes, proposing to cut the business tax rate from 35% to 15%. He wants to close special interest tax loopholes and to restrict companies from moving money out of the country. He has also proposed a corporate tax repatriation plan – to encourage US companies which hoard cash overseas to avoid paying the 35% tax to bring that cash back to the US. According to Capital Economics this cash hoard is now $2.5tn. A tax holiday – so the tax due would be only 10% for a period – could encourage corporations to bring back cash to invest or distribute to shareholders
Public finances
All those tax cuts mean less coming in to government coffers, at least in the near-term. There is an argument that the potential boost to businesses and to household spending power would lift the economy enough to improve government finances. But, for now, economists expect that Trump’s plans for tax cuts across the board will mean the US taking on more debt as its deficit – the gap between spending and income – swells.
Kevin Logan, the chief US economist at the bank HSBC, says: “Reducing the budget deficits, while cutting tax rates at the same time, will be difficult without sizable cutbacks in federal spending. If a Trump administration manages to push through tax cuts with matching spending cuts, federal budget deficits, which are already trending higher, will probably increase substantially, in our view.”
Obamacare
Trump wants to repeal and replace president Barack Obama’s healthcare plan, introduced under the Affordable Care Act (ACA), with his own, cheaper plan for tax-free health savings accounts (HSAs). On the campaign trail, Trump called Obamacare an expensive “disaster”.
About 20 million more people have insurance thanks to the ACA but the scheme has struggled to run efficiently because it relies on competition between insurers to provide affordable coverage, and that competition has dwindled.
Immigration
The most high-profile Trump plan on immigration is for a wall along the Mexican border. He also said he would deport 11 million undocumented migrants, something opponents say is physically impossible. He wants immigrants to be selected on the basis of “their likelihood of success in the US and their ability to be financially self-sufficient”.
Jobs and growth
Unemployment in the US has dropped below 5%, a good record on the surface for Obama. But during his campaign, Trump has focused on those parts of the economy and country where the recovery since the financial crash has not being felt, gaining traction with those Americans who have seen their industries diminish and their wages stagnate.
On the campaign trail, Trump chose the once booming industrial centre of Detroit to set out his economic plan. He cited the motor city’s higher-than-average unemployment rate and crime levels in a speech that played on widespread worries about the decline of US manufacturing.
Trump has said his protectionist policies will keep “jobs and wealth inside the United States” . He has promised to increase employment, saying his plans for lower taxes, trade barriers and tighter immigration rules would lead to stronger economic growth. As with the deficit, many economists warn his plans could make things worse not better, hindering economic growth and thereby employers’ ability to create new jobs.
Trump has bemoaned the deteriorating conditions of American infrastructure but has provided little detail on what big spending projects he would undertake. In his victory speech he said: “We are going to fix our inner cities, and rebuild our highways, bridges, tunnels, airports, schools, hospitals. We’re going to rebuild our infrastructure ... and we will put millions of our people to work as we rebuild it.”
Interest rates
This is not strictly an area for the government, given interest rates are set by the US central bank, the Federal Reserve, widely referred to as the Fed. But there were worries during the presidential race that a win for Trump would undermine its independence and the position of its chairwoman, Janet Yellen.
The president-elect has previously accused the Fed of keeping borrowing costs low to help president Obama and has said the central bank’s policies have created a “false economy”.
In April he said he would be inclined to replace Yellen. In an interview with Fortune magazine, Trump also said he “absolutely” backed efforts to diminish the Fed’s power. Yellen began a four-year term as Fed chairwoman under Obama in February 2014.
Fed policymakers had hinted at another rate rise in December, part of the slow process of bringing policy back to more normal levels after drastic measures to shore up the US economy during the global financial crisis. But investors now think a move next month is off the table given the shock to markets from Trump’s victory and the economic uncertainty that lies ahead.
In the longer-term, more spending and tax cuts from the government – in other words looser fiscal policy – could usher in tighter monetary policy with a more interest rate hikes from the Fed.
Climate change
Trump’s victory has sparked alarm and dismay among environmentalists fearful he will reverse many of the green measures introduced under Obama. Caroline Lucas, the co-leader of the UK’s Green party, described the Republican’s win as “a hammer blow for the fight against climate change”.
In the past the real estate mogul has dismissed global warming as an “expensive hoax”. Now his election to the US presidency has thrown the historic Paris agreement into uncertainty just days after it officially came into force. Trump has threatened to to withdraw the US from the deal to cut greenhouse gases, which took 20 years to negotiate.
By contrast, Trump has indicated he would promote coal, shale gas and oil and there are worries he will curb investment into renewable energy sources as well as funding for the Environmental Protection Agency. He has pledged to scrap regulations for America’s coal industry, a stance that won him the beleaguered sector’s support. It gave around $223,000 in support of Trump, compared with none for his Democratic rival, Hillary Clinton, according to a Reuters analysis.