The biggest show on earth: The US election 2016 (1/2)

Nobody is able to hide from this year’s US presidential election. America will elect the 45th president of the United States, as President Barack Obama is ineligible for re-election due to reaching his term limit. Four candidates are still in the running, but there are only two candidates running this show, namely Donald John Trump and Hillary Diane Rodham Clinton. They are battling in what will inevitably go down as the most controversial presidential elections of the history. Everybody is tuning in for this year’s election.

On November 8th there will be no more speculation as the citizens of The United States will vote for their president for the next term. Major topics include for example corporate and private taxes, with Trump wanting to decreases taxes to create a new tax haven and Hillary being in favor of increasing taxes. What will happen to the US debt when Trump succeeds in winning the election and how will Hillary be able to keep the capitally well-endowed on her side with her plans to implement a minimum tax of 30% for all millionaires? 

Obama Care has also been a topic of many debates, should it is be kept in place or should it be abandoned? A revision of the current state seems inevitable. International trade is another topic causing conflict between Hillary and Trump. Donald wants to abandon free trade, but what will this mean for us here in the Netherlands? More importantly, what will the outcome of this election mean for us here in Europe?

We will give an in depth look on what the views of Trump and Hilary are regarding the most discussed subjects. We will also look at the impact this will have for Europa. With international trade and corporate taxes up for debate our economy should be affected too.


Economic plan

“The Donald” has never been clear on his views on economic policy, as most of his arguments are demagogic slogans focusing mostly on immigrants, terrorism and the corrupted system which Clinton is supposed to be part of. Nevertheless, we can still gain an insight in his views by analyzing the many generalist promises that he pronounced during his speeches.

As many politicians have done when campaigning, Trump promised to cut on taxes. Currently[MF1] , US companies are paying around 38% in corporate taxes; Trump plans to lower these to 15%. In his opinion, this would keep companies from seeking for lower tax expenses in fiscal havens. Moreover, he is willing to encourage US corporate cash held abroad to be returned, while paying a small penalty of 10% on the capital reinjected in the economy. Besides that, he also promised to tax hedge and private equity funds returns as capital gains, thus reducing the tax rate from 39.6% (current income tax) to 15%. These two examples, besides many other promises (like the infamous wall) will inevitably harm the US debt heavily, with estimations of debt increase in the range of tens of trillions of dollars. He also made some claims about cutting down the government budget, by, for example, eliminating the Obama Care.

One of the most worrying policies that Trump promised to comply to is a return to isolationism. He claims that US jobs and profits are taken away by cheaper foreign imports and labor. This might cause problems on the preservation of existing trade treaties and on the creation of new ones, taking the US a step closer to the pre-WWI period.

All these claims have been expressed in a really general way, and most likely, as Trump is currently distancing himself from the Republican party, will not have the necessary support in congress to be brought to life.

Impact on the international community

The country which, in theory, would be hit the most by a Trump victory, would be Mexico. Trump has often promised to impose tariffs on their southern neighbor and to greatly reduce Mexican imports to the US. This can already be seen in the way the Mexican Peso has been fluctuating during the past months of campaigning. As Clinton is becoming more likely to win, the value of the Mexican currency is increasing with time, showing that its value is considerably related to the election outcome.

Similarly, the Korean won, Norwegian krone and New Zealand dollar would be negatively affected if Trump wins. 

China would also be influenced negatively if Clinton loses the election. Trump believes that, as with Mexico, Chinese imports should be reduced, and trade limited. However, due to the size of the Chinese economy, combined with the diversification of their trade partners, they will be left relatively unaffected.

Concerning Europe, many believe that if Trump wins nothing notable would happen to our currency. On the other hand, it might have an impact on international trade. As already mentioned, Trump is openly against free trade and he may have an impact on countries that rely heavily on trade, like the Netherlands.

Whatever the outcome will be, investors are already starting to speculate, releasing opinions and reports about what will be the consequences if Trump wins. Deutsche Bank for example, noted that a victory might positively influence the US oil industry, as the republican nominee will allow more drilling in the country and decrease oil imports from abroad. 

However, we personally believe that many of the claims that Trump has made during this campaign period will not be put in practice for two main reasons. Firstly, it will be pretty hard for the American tycoon to gain the necessary support from Congress. Especially in recent times, the relationships between the presidential nominee and the GOP have not been warm, and retaliation in later stages is expected, especially given that Congress elections in the US are considerably different compared to national elections (see what happened to Obama a few years after his election). Given that Trump does not look like a person who will be open to negotiations with the congressmen, we do not see many laws being passed in the future. Second, many believe that Trump is making unrealistic promises during his presidential run exclusively to try to appeal to as many voters as possible. We believe that in reality he will not go as far as he promised in his campaign, and that he will probably get closer to the GOP and become more moderate than he has been during the campaign, by dropping some of his most extreme ideas. It is one thing to talk about ruling, but another  to actually be in charge and face reality. 

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