Who says Trump is good for business

Following the shock result of the US presidential election, everyone has been asking what a Donald Trump presidency will mean. How is he likely to lead his country, and what are the possible ramifications for the rest of us?

The immediate market reaction to his election was very negative. In Japan, the Nikkei 225 dropped over 5%, and the dollar moved sharply weaker against other major currencies such as the euro.

However, these losses have been very quickly reversed. The Nikkei is now trading at higher levels than before the election, and so is the S&P 500. The dollar is near its best levels against the euro this year.

While the consensus before November 9 was that a Trump victory would mean high risk and extreme uncertainty, the market seems to have come to terms with him very quickly. It has apparently decided that he’s not all that bad after all.

In a piece published on Moneyweb on Tuesday, Citadel’s chief strategist Adrian Saville noted that: “fiscal and monetary policies promoted under Trump will help US consumer spending, infrastructural spending and corporate profitability. It is important not to lose sight of the fact that this could ultimately translate into higher productivity, improved competitiveness and faster economic growth.”

Investec’s chief economist Prof Brian Kantor expressed similar sentiments in a note last week, in which he detailed what he believes will be the positives from a Trump presidency: “What the pundits missed is that while Hillary Clinton represented business as usual for the US and its allies, business as usual under Obama had become increasingly less friendly to business,” Kantor noted. “US and global business have come under increasing suspicion and hostility from more ambitious and obstructive officials emboldened with ever greater executive powers. The Trump administration, with the aid of a friendly Congress, could achieve some quick wins for US business by annulling or at least amending financial and environmental legislation and practice, as Trump had promised to do.”

Now these are two men who command a great deal of respect and whose views carry a lot of weight, and so their views should not be disregarded. However, it is worth asking whether there aren’t hints here of trying too hard to find a silver lining on a particularly dark cloud.

There may be short term benefits to having Congress, the Senate and the White House all under Republican control. That, however, has little to do with Trump himself. If they are implemented, tax cuts and reduced bureaucracy may also provide a temporary boost to US production.

However, there is very little to suggest that there are likely to be any long term economic benefits from a Trump presidency. In fact, quite the opposite.

In an investment note published on Monday, BlackRock urged caution: “Long-term economic and market risks are increasing,” the asset manager said. “The Trump shock has magnified political uncertainty linked to rising populist pressures ahead of key votes in Europe. The president-elect has said he would overturn or renegotiate trade deals. This could hurt the global economy — particularly export-dependent emerging markets (EMs) — and spark risk-off sentiment and a weaker Chinese yuan.”

The Economist Intelligence Unit (EIU) was even bolder:

“Mr Trump’s election victory will cause widespread alarm across the global economy, given his loose grasp of economic policy, unabashed political populism and tendency for contradiction,” it said in a note.

The important consideration here is what one believes is good for business. Tax cuts and getting rid of some red tape will be a boost, but in the long term business needs a robust, sustainable economic environment to prosper. That is hardly guaranteed under a Trump presidency.

Policy certainty with Trump in the White House seems very unlikely. If he is serious about re-negotiating major trade deals, that is going to create a very murky environment for investors. It is also likely to be damaging to consumers, who will find themselves having to pay much more for goods that he has promised to slap with high import duties.

He has also indicated his intention to disregard agreements relating to carbon emissions and the use of fossil fuels. Again, this might be nice in the short term for oil and coal companies, but it’s a dead end in the long run.

Most concerning of all, however, is that under Trump the political environment in the US may well become more unstable and the risk of serious international geopolitical conflict could go up. That means more investment risk, and more reason for companies to hold onto their cash rather than deploying it for growth.

Trump has not suddenly become less dangerous just because he made a conciliatory speech after the election. There were good reasons for the worldwide concern about the potential that he might make it into the White House, and those haven’t gone away.

The appointments he has already made should make this very clear. He has given highly influential posts to very controversial individuals like Steve Bannon and Myron Ebell.

Controversy, uncertainty and risk are not good for business, and that is what these men represent. We shouldn’t try to put lipstick on a pig. The risks inherent in a Trump presidency remain very high, for business and everybody else.

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