In mid-January 2017, Donald John Trump became the 45th President of the United States of America. Even though you may think the election of an American President has only minimal impact on your life and business, you are wrong. The election of President Trump has major implications, which will unfold potentially over, at least, the next decade.
For the past seventy-five years, American has adopted a largely interventionist role in global economic and political affairs. Trump’s campaign was based on the concept of “Make America Great Again”, which for intents and purpose involves the US adopting a more isolationist stance.
Trump’s economic plan is based on lowering the company tax rate to either 15% or 20%, reducing the top rate of personal tax to 25% from 39.6% and undertaking vast expenditure on infrastructure projects.
In addition, Trump plans on reinstalling protectionist trade policies to assist American manufacturers, including meaningfully raising tariffs on Chinese and Mexican products exported to the United States.
The impact of Trump’s economic policies if implemented is complex.
American business will in the short-to-medium term will become much more competitive and be able to invest larger amounts on growth initiatives. American companies will experience demand from consumers who will have higher disposable incomes due to paying lower income tax. The American companies will pay less tax on their higher profits and will be able to compete strongly against foreign competitors who will face lower demand for their higher priced goods due to tariffs.
Large government expenditure on infrastructure will lower unemployment and stimulate the economy but government debt will steadily rise.
The US economy will initially boom, inflation will increase and interest rates will begin to march higher.
Some Australian companies will face a tough time, mainly those Australian companies which compete against American companies. The Australian companies will become less competitive, due to the US companies paying lower taxes. While, those Australian companies which export products to the US will also be less competitive due to the higher tariffs.
In the medium term, Australian banks which borrow funds in the US will face higher interest rates, which ultimately will mean slowing increasing interest rates for domestic borrowers.
However, it’s not all bad news a booming US economy should stimulate global growth, with the Australian economy potentially a key beneficiary, particularly our mining industry.
Therefore the best strategy for Australian business is to be alert but not alarmed by the new American President and continue planning for better economic times.
Important Note: These articles have been prepared for general circulation and are circulated for general informational purposes only; these articles should not be regarded as business or investment advice. The articles represent the views of the writers and are subject to change without notice. Additionally, while every care has been taken in the preparation of the articles no representation or warranty as to accuracy or completeness of any statement is given. An individual or organisation should, before any business or investment decision is made, consider the appropriateness of the information in this document, and seek professional advice, having regard to objectives, situation and needs. This document is solely for the use of the party to whom it is provided.