By Michael O’Neill, Agility FX Senior Analyst
Check your calendars. There are only seven weeks remaining until America decides whether Donald J. Trump or Hillary Clinton will be the new leader of the free world.
Mr. Trump came out of the weeds and surprised the Grand Old Party establishment. He was the run-away winner of the Republican Presidential nomination race that had 11 serious candidates by February 1, 2016. Of all the candidates, he was the only one without any prior political experience. He is a successful businessman who supposedly started with $200,000, straight out of college and turned it into $4.5 billion. (according to Forbes)
Mrs. Clinton is a well-known politician. She has been everything from the First Lady of Arkansas to the First Lady of the United States, the US Senator from New York from 2001-2009 and the US Secretary of State from 2009-2013. Her political pedigree is blue ribbon. Along with her husband, former President Bill Clinton, the couple have turned their civil servant salaries into a net worth of somewhere around $111.0 million.
One of them will become the 45th President of the United States.
A Donald Trump presidency will:
- Allow parents to deduct child care expenses and expenses for elderly parents
- Reduce personal and business income taxes
- Renegotiate the North America Free Trade Agreement (NAFTA)
- Withdraw from the Trans Pacific Partnership (TPP)
- Label China a currency manipulator
- Rescind the Climate Action Plan/ Cancel the Paris Climate Agreement
- Ask TransCanada Pipeline to renew its application for the Keystone Pipeline
- Build a Mexico paid wall between the US and Mexico
A Hillary Clinton presidency will:
- Impose a “fair share” tax surcharge to ensure wealthy Americans pay their fair share of tax
- Close corporate and Wall Street tax loopholes
- Use tax proceeds from wealthy Americans and corporations to pay for ambitious investments
- End Alzheimer’s disease
- Take on the gun control lobby
- Protect animals and wildlife
- Introduce comprehensive immigration reform
- Provide tax and red-tape relief to small businesses.
The impact of this election on the Canadian dollar and global financial markets will be dependent on which candidate wins. It is not a stretch to suggest that if Donald J Trump becomes the 45th president of the United States, the Loonie may be in for a wild ride.
Cancelling the North American Free Trade Agreement will be as devastating to Canada as leaving the European Union will be for the British. It is hard to deny the advantages of eliminating tariffs on locally produced goods. According to the Council on Foreign Relations, NAFTA has led to an increase in regional trade from $290 billion in 1993 to more than $1.1 trillion in 2016.
And if that’s not enough to get traders nerves twitching, how about added uncertainty at the Fed. Back in May, Mr. Trump told CNBC that he would replace Janet Yellen when her time is up implying that she was not doing a good job. On September 12, he said that the Fed was keeping rates low to protect Barak Obama’s legacy which has created a false stock market. Markets do not like uncertainty and they will be even more unhappy if the Fed’s independence is eroded.
The bigger issue is if a President Trump picks a fight with China. Daiwa Capital Markets economist, Kevin Lai told Bloomberg on September 14th that if Trump imposed a 45% tariff on Chinese goods, it would spark an 87% decline in China’s US bound exports. The fall-out would be nasty. Trade wars would flare up everywhere. Investors would scramble to find a safe haven. Gold would soar.
A US-China trade war would be ugly for China as well and it is not out of the realm of possibility to suggest a military crisis could ensue. China does not recognize the World Court ruling denying their claim to the South China Seas. What better way to protest American tariffs and protect your trade interests than by controlling the area where more than ½ of the world’s shipping tonnage passes?
And the Canadian dollar? It would be diced and sliced and pulled in both directions simultaneously. On one hand, it is not America and the banking system is stable. That would lead to Canadian dollar demand from safe haven seekers. Unfortunately, those flows may be insignificant as global investors realize that the end of NAFTA would seriously impact Canada-US trade and Canada would be worse off for it.
Hillary Clinton is not the most beloved politician on the planet. Far from it. Her campaign platform is familiar to Canadian voters. She promises a lot of things to a variety of special interest groups and makes sure she includes the latest gender- specific flavor of the day. A vote for her is a vote for the status quo.
The status quo may be in for a rude awakening. Mrs. Clinton’s lead over Mr. Trump has shrunk. According to the New York Times on September 15, 46% of the likely voters nationwide, support her while 44% are for Mr. Trump.
In a mere seven weeks or so, the world will wake up to either bedlam or boredom in financial markets. Even the Magnificent Seven would be impressed.