What the US election could mean for global industry
Donald Trump was elected US president Tuesday, sending a political outsider to the White House. The win defied polls predicting his opponent, former US Secretary of State Hillary Clinton, would be the victor.
Businesses around the world have been well into preparations for a Trump administration. But it hasn’t been easy to predict what a Trump administration will offer industry and trade.
Markets like predictability. Trump’s campaign, however, has confounded analysts, including some at JPMorgan who last week issued a note to investors saying that Trump’s proposals have been so vague that it was difficult to assess their potential impacts, according to Bloomberg.
CGMA Magazine asked management accountants and finance leaders what opportunities and challenges they’re expecting. Here’s what they had to say.
For global businesses, the first question may be Trump’s plans for international trade.
“Trump’s politics and economics, from this side of the Atlantic, are seen as more protectionist, and that’s something which is seen as a worry wherever it appears, politically, in a country which is traditionally a champion of international trade,” said Duncan Hames, ACMA, CGMA, a former Liberal Democrat member of British Parliament.
Trump has threatened to penalise companies that move US jobs abroad, and he has said that he would demand a renegotiation of the North American Free Trade Agreement.
Globally, analysts expected that a Trump victory would immediately drive down the value of the US and Canadian dollars and the Mexican peso. Developing countries could be hurt by Trump’s drive to return manufacturing jobs to the United States, according to analysts cited by Bloomberg.
The Mexican peso, the currency most vulnerable to a protectionist US policy, dropped as much as 13% overnight but recovered on Wednesday. S&P 500 futures, the Dow Jones Industrial Average Index, and the NASDAQ went through similar turnarounds. Following overnight selloffs, the S&P 500 and the NASDAQ each closed up 1.11%. The Dow closed up 1.4%.
Analysts have expressed concern about anti-trade positions stated by Trump during the campaign – tendencies, which, if acted upon, could lead to lower corporate earnings, especially for large multinational companies, and higher prices for consumers, TD Asset Management analyst Bruce Cooper wrote. Trump’s positions could also slow economic growth, especially if China retaliates with tariffs of its own, Cooper wrote.
Jeffrey Kaufman, a transportation analyst with Aegis Capital, expected that some trade agreements will be challenged, which could increase the likelihood of potential protectionist retaliation, result in slowing growth in global trade, and put companies with diversified global operations at increased risk.
An aversion to global trade could also offset a fiscal stimulus from expected Republican tax cuts, which could affect 2017 interest rate increases by the US Federal Reserve, projected Philip Marey, senior US strategist with Rabobank.
There is “a lot of fear and uncertainty globally because of some of Trump’s campaign promises regarding changes and trade policies,” said Leslie Murphy, CPA, CGMA, the president of Murphy Consulting outside Detroit, Michigan. Murphy, a director on three corporate and five nonprofit boards, is a former chairman of the board of the AICPA.
There’s also the personal angle.
“It will be interesting where the US stands in the eyes of the global community. [Trump] has not been too kind to many of the leaders around the world, so I’m not sure how the rest of the world is going to look at the US,” said Anoop Mehta, CPA, CGMA, and president of Science Systems and Applications Inc. in the mid-Atlantic US state of Maryland.
Adding to the uncertainty: The United Kingdom and the European Union are just starting to plot out the next steps for the British exit from the union.
“In the UK, our politicians often like to speak of the special relationship with the United States,” Hames said. “It seems to endure even when the US president and the British prime minister are from different political families. But at a time when our relationship with our European partners is strained to say the least, finding ourselves of less interest to our partners in the States is something which would just add to that discomfort.”
The practical impacts have long been on the minds of many businesses, and they would be sure to evolve if Trump’s protectionist stance filtered into the political system.
“Boards I sit on considered impacts on their global business in the past year,” said Tom Hood, CPA/CITP, CGMA, the CEO of the Maryland Association of CPAs, referring to the election in general.
“Once the election is decided, the issues will change to how likely changes are and any modification of distribution channels. For example, will we continue to operate in certain countries?”
Domestic industries and regulation
One of Trump’s oft-repeated promises is to repeal and replace the Patient Protection and Affordable Care Act, the signature health-care law of the Barack Obama administration.
Among other requirements, the law stipulates that employers of a certain size must offer health-care coverage to employees or pay a penalty. With premiums increasing sharply in some markets, some see signs of relief in Trump’s plan. Mehta, for example, said his company’s health costs have risen by 8% to 10% in each of the past two years.
“We are seeing [the Affordable Care Act] have an impact on our business, so I think that’s going to help us,” he said.
The uncertainty about the future of health insurance may also make companies more cautious in changes to health spending.
“We may take a conservative approach because [health-care provisions] might get put on hold or be removed totally,” Mehta added.
The energy markets could see particular disruption under a Trump administration. Trump has championed coal and oil production, saying he would roll back environmental regulations.
“Perhaps most importantly, and where the two [candidates] appear to differ most, is on climate policy, with a Trump victory potentially killing off the Paris agreement and [affecting] a lot of green investment,” said Michael Rogerson, ACMA, CGMA, of OEE Consulting in the United Kingdom. “Domestically and internationally that could have huge ramifications given the seriousness of the need to address our impact on the earth.”
And it could also affect the price of energy, the performance of associated stocks, and more.
What’s not so clear is how quickly or broadly Trump could achieve that or other goals. He would need the support of the US Congress to pull off any significant changes, and that’s not guaranteed with a Trump victory. While the Republican Party retained control of the US Senate and House of Representatives, Trump has at times been at odds with party leaders in both chambers.
“He may favour regulation less, but he can’t control Congress,” said Laurie Brooks, a member of the board of directors at Provident Financial Services in New Jersey. “I don’t think Congress is in the mood to repeal everything. They’re just not. They may make slow change, but they won’t say, ‘OK, we’re just going to turn around and go back to chaos.’ Because that’s where we were in 2008.”
The first order of business for organisations will be to learn about the new administration’s business, tax, and social policies. “Anticipate how those policies could impact your organisation, your customers, and your supplies,” Hood said. “Then, you need to create a strategy and options to adapt to those anticipated changes.”
An understanding of the larger changes at play in the country will be crucial, Hames suggested.
“Here, after the European referendum, we as a society and as businesses and employers had to address the need to make sure that our European citizens, working in our public services and in our businesses, still felt welcome and appreciated, and that we could provide whatever clarity we possibly could around their situation, at least in the short term,” he said. “So, it’s always worth thinking these things through and looking for the universal impacts of an outcome as well as things that affect you directly.”
Tim Raiswell, a finance research leader for the information service company CEB, said that major categories of change may sometimes be so obvious and broad that they are ignored.
“Maybe I’ve thought through my peso exposure, because I see the peso doing interesting things when Donald Trump speaks on television – but have I really thought through what the repercussions could be for a changing trade relationship?” he asked.
There’s also a question, he said, of which of Trump’s promises will become reality first. That will play a major role in how companies should react – and it may become obvious weeks after Election Day.
“There’s a long and winding road from rhetoric to regulation,” he said. “Which of these issues are on the shortest fuse?”
12 questions to ask during political change
The following is a sampling of groundwork considerations suggested by CEB:
- Which countries contribute significantly to our international revenue?
- Which trade deals affect our international sales?
- How might new trade policies affect our supply chain? How might we react?
- Which product lines might be affected by changes in tariffs?
Immigration, labour, and wages
- Does our workforce require visas or ease of international movement?
- How would new immigration and labour laws affect our recruiting?
- Have we prepared for the possibility of a minimum-wage increase?
- What tax breaks might we lose?
- What tax deductions might become available to us? How would we take advantage of them?
- What aspects of our tax planning could be subject to new scrutiny?
- Would lower corporate taxes allow us to return cash from overseas? How would we spend it?
- How would tax-code changes affect our strategies for repurchase programmes and other shareholder interactions?
CGMA Magazine senior editors Neil Amato, Sabine Vollmer, and Samantha White contributed to this article.
—Andrew Kenney is a CGMA Magazine contributing editor.