The Impact of Trump

Gosh… what a difference a month can make. The potential election of, and then the actual election of, Donald Trump to the White House caused the US share market to rise almost 10 per cent in recent months.

But then the sudden realization of what an actual re-energized Trump Presidency means for the world and the domestic US economy, has prompted the share market to slide, bond yields to fall, cryptocurrency values to tumble and consumer confidence to plunge.

Putting aside the fact that world political/economic order seems to have been turned on its head since the election of Donald Trump, I think the biggest impact has been on domestic confidence about the US economy.

While Trump promised smaller Government, lower taxes and more deregulation, what he has so far delivered has been confusion and repeated changes, that have left many Americans uncertain and fearful.

The biggest issue of course is the prospect of a sharp rise in the tariffs applied to goods coming into the United States. Trump seems to be under the impression that foreign Governments or manufacturers will pay these additional charges that will be put on goods sold in the US.

That is not the case. Say a cooking appliance made in Mexico is sold into the United States for $100. The application of say a 25 per cent tariff means American households will pay $125 and not $100 for that white good.

That’s bad news for Mexico as it will likely mean less goods being sold. But it’s also bad news for American households as they will be paying an extra $25. It will mean a surge in domestic US inflation, which will prompt US interest rates to jump and economic activity to slow.

It’s a ridiculous situation where everyone loses, which is why for decades developed economies have been trying to reduce tariffs and trade barriers and put in place free trade agreements as these agreements are such a win/win for everyone.

Then there are the efforts to deport supposedly millions of illegal migrants, who by and large provide the cheap labor force that has built so much of the economic muscle that has made the United State so successful,

This combined with widespread redundancies within the Public Service, appears to be putting many Americans on edge. So much so that a key indicator, the US Conference Board consumer confidence survey issued last week, shows a fall of 7 points, its third straight monthly decline and the largest monthly fall for the past three and half years.

Let’s hope Trump slows downs and allow the US economy to adjust to the enormous changes that he appears to be pushing through.