US Presidential Election: The Nuclear Option

Donald Trump bad. Hilary Clinton good.

That is the general narrative on most discussions around the impact of the 2016 US Presidential election on the global economy, the US economy and the Irish economy.

The Economist Magazine has become the latest media publication to back Hilary Clinton, demonising Donald Trump. In their piece in this week’s issue, entitled “America’s best hope: Why we would cast our hypothetical vote for Hillary Clinton”, there is certainly no sitting on the fence.

While they make the case for why Hilary deserves to be elected on her own merits, their sentiment towards Donald Trump is summed up by one statement: “We would sooner have endorsed Richard Nixon—even had we known how he would later come to grief.”

As for the financial markets, we have also recently had to listen to how gains in the polls for Donald Trump have rattled markets. It is all short term noise.

A research report from Citi last week warned about the possibility of an immediate 5% sell-off in the S&P 500 Index – a major stock market index made up of 500 of the largest US companies by capitalisation – if Trump is elected.

To put this and other warnings in context, consider the fact that the S&P 500 Index fell almost 55% peak to trough in the 2008-2009 financial crisis, a period that had George Bush and later Barrack Obama at the helm. Markets didn’t care whether it was Bush or Obama, a man who struggled with words or an expert orator, a Republican or a Democrat.

Longer term Citi have warned:

“A Trump win risks slower growth or recession if trade is restricted and fiscal expansion plans curtailed. Uncertainty alone could hit the economy. Global growth will also be impacted if uncertainty rises, U.S. growth is hit and U.S. financial conditions tighten.”

Aside from his inflammatory language, Donald Trump is seen as a loose cannon. The belief is that Hilary will maintain the status quo while nobody really knows what Trump would do if he is elected. More importantly, it would be another reminder that the established order is in trouble.

What does each candidate stand for?

There tends to be a lot of hyperbole thrown around by each candidate when making promises on the economy. Hilary wants ‘an economy that works for everyone’, while Donald Trump wants to ‘make America great again’.

Hilary Clinton has proclaimed: “We need to raise pay, create good-paying jobs, and build an economy that works for everyone—not just those at the top. I’ll cut taxes for the middle class, raise the minimum wage, and ensure the wealthiest pay their fair share. I’ll invest in infrastructure, clean energy, and education. And I’ll help parents balance work and family.”

On the other hand, Donald Trump’s message is: “Reform the tax code and trade policies to make it easier to hire, invest, build, grow, produce, and manufacture in America. Stop China from stealing our jobs, renegotiate NAFTA, cut unneeded regulations and make America the best place in the world to do business. Putting America First—and not globalism—will keep jobs and wealth in America.”

This is all political rhetoric. Hilary Clinton has been part of the political establishment for decades. The Economist Magazine says she is a revolutionary in her own right, breaking new ground as potentially the first female president, but this is no Che Guevara fighting for the people.

Donald Trump is using China to build fear among the disenfranchised. Fear sells, particularly in US elections. He is appealing to the many Americans that feel left behind by the system. However, Trump’s popularity in itself is reason enough for those in power to wake up and recognise the inequality that has been the by-product of globalisation.

Research from Deutsche Bank, an investment bank no less, recently warned that globalisation has contributed to a class struggle and the rise in support for extreme political parties is a warning signal that a policy shift must happen to halt the rise in anti-establishment parties.

“The stresses it has caused politically are starting to result in higher and higher probabilities of a dramatic social and political response.”

‘The Donald’ saw an opportunity and he went for it. If elected, the establishment only has itself to blame. The irony is that Trump puts himself forward as the anti-establishment candidate. He might not be part of the political establishment, but this guy is corporate through and through.

The need for a fairer economic model

Whether it is Hillary Clinton or Donald Trump, corporate interests will continue to dominate the agenda through the almighty dollar. Corporate donations come with a price, and that price is your independence. People are easily bought. Watch Leonardo Di Caprio’s powerful documentary on climate change – ‘Before the Flood’ – to get a sense of how elected officials have been influenced to support the fossil fuel industry over the environment.

It is the same across other industries, as powerful lobby groups spend billions on shaping the legal and regulatory environment. The elected officials merely get to play around the edges.

Neither candidate will bring about a change in the current economic model that has been exported across the globe which focuses purely on “maximising shareholder value”. We need an economic model that fosters growth for the benefit of all stakeholders in the economy – including the explicit consideration of the environment – which allows for a greater percentage of a population to participate in that growth and with a fairer distribution of wealth.

Ireland tax haven at risk

At home, the prospect of a Trump victory has raised concerns that the US might cut corporate tax rates and thus result in ‘less profits being booked through Ireland’. This is the same fear that is emanating from the BREXIT decision, new challengers to our tax haven status.

There needs to be a global discussion on corporate taxes, otherwise it is just a race to the bottom. We can’t bury our heads in the sand and hope we continue to get away with it, irrespective of who is elected President. Corporates have to pay their fair share.

As for the wider impact of any slowdown in the US economy. The old saying ‘when the US sneezes, the rest of the world catches a cold’ still holds true, particularly for a small open economy like Ireland.

The nuclear option

It is hard to get enthusiastic about the upcoming US elections. There is little to be excited about in either candidate. The deeper you delve into their backgrounds the more concerning the trajectory of the world.

Faced with the unenviable choice of electing either candidate, the deciding question seems to come back to ‘who would you be more comfortable with having control over the world’s most powerful nuclear weapons’. I suppose you would have to take another Clinton.

Yet the bigger question is why do such weapons, with the power to wipe out the planet, actually even exist. In fact, the US has committed a trillion dollars to modernise their nuclear arsenal over the coming decades. Meanwhile, there is an estimated 45 million Americans living on food stamps!

The last US Presidential nominee to inspire hope was the anti-war candidate Barrack Obama. Awarded the Nobel peace prize in 2009, it is hard to argue that he has made the world a safer place. You can blame Obama or the broken system. Either way, the rise of Donald Trump just shows how many Americans have lost hope.

(*Picture source: The American Dream by Jackcomstock)