The Trump Effect


The first year of the Trump administration has not been dull. Radical domestic and foreign policy announcements, dramatic White House personnel changes, tabloid scandals and allegations about Russian interference in the election – these have captivated traditional and social media.

But Donald Trump has had another, quieter, but potentially much more far-reaching impact.  This “Trump Effect” is economic, and it is having profound and tangible effects across a range of industries in the US and beyond.

The 2017 report card includes a growing economy, 3m new jobs, subdued inflation and a booming (but volatile) stock market.  Powell took over at the Fed and his hawkish stance has rattled bond and equity markets, but so far any retreat has been orderly.

The Financial Choice Act is intended to “create hope and opportunity for investors, consumers, and entrepreneurs by ending bailouts and Too Big to Fail, holding Washington and Wall Street accountable, eliminating red tape to increase access to capital and credit.”  In practice this means tax cuts, withdrawal from various international treaties, a more protectionist trade stance, and a push to bring companies, tax revenues and jobs back to the US.

A new Credit Benchmark white paper – “The Trump Effect” – looks at the credit implications of these policy changes and concludes that, in credit terms,  the Trump Effect is real and positive.

The paper shows that bank perceptions of credit risk have improved across a wide range of US economic sectors and especially in the Coal, Defence and Steel industries – the main targets of favourable policies.

Many economists are critical of protectionism, fearing a wave of retaliation; but the threat of increased tariffs may be a negotiating tactic; it has already drawn out offers of reduced tariffs from some trading partners.

Despite a long list of concerns from traditional republicans, it appears that corporate Animal Spirits have been revitalized by the new administration; 2018 could see a wave of corporate investment and a closing of the credit quality gap with Europe.

The Trump Effect has so far had some significant and positive direct impacts on US business confidence and bank perceptions of US corporate credit risk.  The indirect global effect of regulatory and economic protectionism will unfold this year.

This will have further consequences – positive or negative – on the US economy.  Status quo is not a likely outcome.

 

To download the full report, click here.


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