Contrary to what some may say, whoever wins the battle for the White House will have a whole new battle to win with Congress

 

The potential effect of the US Presidential Election on the economy around the world, including the UK, is great. Stocks, trade and job creation can all be affected by the outcome of the contest for the White House.

The most noticeable result of the election would be an increase in stock market volatility. The market and many individual stocks would fall in value if Donald Trump wins. Trump has proposed radical trade policies including a 45 per cent tariff on Chinese imports and a 10 per cent tariff on all imports, which would seriously hurt British exports and lead to job losses in the UK.

The immediate effect of a Trump win would be a drop in the market followed by a quick recovery. That might be followed by a bigger collapse after New Year’s Day because in the United States a President does not take office until the 20th of January.

That creates a long period of potential uncertainty. The media would be full of speculations about Trump’s cabinet choices, generating hysteria from his Tweets. Another problem is that Trump has made a wide variety of radical and unrealistic promises.

Of course, he is likely to go back on many of them and generate even more confusion — similar to UKIP’s famous £350 million NHS pledge prior to the Brexit vote.

If Donald Trump Wins

Economist Simon Johnson of the Massachusetts Institute of Technology predicted that a Trump presidency would lead to a worldwide recession. Johnson also expects a Trump presidency to lead to a stock market crash and a ‘banking crisis’ in Europe.

Such fears are shared by many experts on Wall Street and in the City, including economists at the giant American banks Citigroup and Goldman Sachs, according to the New York Times.

Such effects might be months away and very limited because it is unclear just how much of his agenda Trump will be able to implement. The American President has far less power and influence than the UK Prime Minister; for instance, he or she cannot introduce legislation, or set policy on a wide variety of issues including taxes, healthcare, welfare and business regulation.

All the president can do is to suggest legislation to Congress, which sets the budget and determines the policies. Then sign that legislation if it reaches his or her desk. Congress however is under no obligation to even pay attention to the president’s suggestions.

The situation on trade issues is confused because present law gives the president the right to negotiate trade deals and set trade policy. Yet the Constitution clearly gives that responsibility to Congress. That means Congress has the power to strip President Trump of his authority over trade, if he tries to keep his promise to launch a trade war.

Since the majority of the members in Congress are Democrats or conservative Republicans that disagree with Trump on a wide variety of issues, a Trump presidency is likely to be one long political battle with legislators. Expect to see a quick return to the kind of political gridlock that characterized Obama’s presidency, with all legislations blocked by constant battles between the White House and Congress.

What this all means is that the economy and the market might recover fairly quickly, when it is realised just how little power a Trump presidency would wield. Instead of recession, we might see a stock market correction, followed by a recovery.

If Clinton Wins

A Hillary Clinton victory would probably mean an immediate upswing in stocks because the Democrat is widely seen as a defender of the economic status quo. She is also widely perceived as a friend of Wall Street.

The volatility from Clinton would come later because her economic policies on issues like trade and business regulation are unclear. Unlike Trump, Clinton has made few specific promises beyond renegotiating one trade treaty, the Transpacific Partnership.

There are some fears that Clinton would try to implement radical positions to placate left-wing Democrats, including influential US Senators Bernie Sanders and Elizabeth Warren. Mr Sanders is known as a fierce critic of free trade and Warren has called for more banking regulations.

A tilt to the left by Clinton would cause market corrections, although like the Trump slumps they would be short-lived. Republicans have enough votes in Congress to block any radical left-wing moves by Clinton.

Yes, the US Presidential Election will affect the economy, but the effects will not be as great as many people think. The next US President will probably be a weak leader with limited influence and minor power to make radical changes — regardless of who wins.

Image Source