Published On: Fri, Dec 9th, 2016

Donald Trump: Biggest Threat, Yet the Biggest Opportunity to the Economy

The count-down to January 20th 2017 is underway with just a few days to go before president elect Donald Trump finally occupies the White House. However, the jitters about his proposed radical economic policy changes are still lingering within the minds of those who are opposed to them. In a newly released report from a survey conducted by the Oxford Economics after the November 8th elections, the Republican administration led by Trump is viewed as being a high-risk yet a high-reward opportunity for the United States of America and the global economy at large.

Markets are not sure yet as to how Trump will run the government and what the pitfalls will be bearing in mind he has no political experience whatsoever. This uncertainty has created a wait-and-see situation from some investors while others are bullish about Trump’s administration. Some traders have opted to invest in binary options in the mean time since incase the market dips after January 20th, they will be able to cut their losses faster since they do not own the actual underlying assets. There are positive sentiments though about president elect Trump with 45% of the voters having a favorable opinion about him in a survey conducted after the November 8th election; compared to 36% in mid-October 2016.

2011 photo/ Gage Skidmore

2011 photo/ Gage Skidmore

Much of the fears on Trump’s economic policy are being elicited from his hard stance against China and Mexico. During his campaigns, president elect Donald Trump proposed that he would reduce the amount of imports coming to the US from China and Mexico by slamming them with high tariffs; 45% and 35% for China and Mexico respectively. This however would result in trade wars as Bernard Baumohl, chief global economist at The Economic Outlook Group explains. “If he goes through with those tariffs, it’s likely both those countries will retaliate against the U.S. That would trigger a trade war at a time when the U.S. economy is growing at barely 2 percent, that’s not much of a buffer to protect the economy from slipping into a recession,” Baumohl, explains.

Another major economic policy change that Trump recommended that could be disastrous is the reversal of the North American Free Trade Agreement (NAFTA). This would hurt Canada and Mexico who are immediate neighbors to the US.  Some analysts have predicted that in case NAFTA is reversed, illegal immigration especially from Mexico will rise due to loss of jobs back home. Trump’s efforts to stop them from coming into the US may not bear any fruits especially now that we are not sure that he will actually build the wall on the boarder of US and Mexico as he promised during the campaign trail.

Generally, most of these major economic policy changes recommended by Trump have the potential to trigger international geopolitical tensions, which may deteriorate foreign policy and global peace at large.

On the other hand, the report by the Oxford Economics says that Trump “is also viewed as the most likely source of upside risk” due to potential White House economic policies like lower personal and corporate taxes and infrastructural improvement, among others.” The report continues to note that “The potential for U.S. growth to surge on the back of a Trump fiscal stimulus package is cited as the top upside risk by 38 percent of respondents.” The upside that cited the most was on loosened fiscal policy globally.

In the night of the elections when it became clear that Donald Trump was winning the election, stock markets in the US tumbled with huge margins. However, to everyone’s surprise, a day later they were back on a rally to both correct the Election Night drop and surge above the closing prices before the Election Day. With full control on the Senate and the House of Representatives, unity of purpose among the Republicans is viewed as a key strength that will propel the economy to high growth with minimal legislation hurdles.

In the mean-time, we all are eagerly waiting to have Donald Trump in the Oval Office on January 20th and then feel the real effect of his presidency after inauguration. As to whether he will be able to push the economy to grow at 4% from the current 2%, we can only wait and see and remain hopeful.

Author: Lolita Di

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