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Bitter Fight For The White House

This week, Hillary Clinton became the first female to be nominated by a major US party as their presidential candidate. President Obama thinks “there has never been a man or woman more qualified to be president”; her opponent, Donald Trump, has called on the Russians to hack her e-mails. In a bitter contest, who will win and does it matter?

Who Will Win? Two-thirds of voters say Trump is unqualified to hold office and has an unfair bias against Mexicans, Muslims and women but many are still prepared to vote for him. Trump has built a core following of about 20% of the electorate upon which he can build if he moderates his style. Hillary Clinton can count on most of the minority vote but the key will be shoring up the support of women and those white blue-collar workers who have doubts about Trump.


Latest polls give Donald Trump a small (post-Republican convention) lead over Hillary Clinton. A consensus is emerging that if he can win four traditionally Democratic states in the rustbelt of the Great Lakes – Michigan, Ohio, Pennsylvania and Wisconsin – and hold other Republican leaning states, he’ll win the keys to the White House. Those four states are currently polling as toss-ups.

A Referendum On Globalisation. Opposition to globalisation has emerged and spread throughout the developed world. Family incomes for the American middle class have barely risen since 1976 while the spread of automation to manufacturing, truck driving and other routine occupations threatens jobs and wages. Imports as a share of US GDP have risen steeply from 7% to 15% over the past 40 years, especially after the NAFTA free trade deal.

Donald Trump has tapped into a reservoir of slow burning anger among blue collar workers who are employed in income-competing sectors and feel at the sharp edge of globalisation. For these voters, fanciful promises of a 45% tariff on Chinese imports and a wall to keep out Mexican immigrants resonate despite Trump’s past record in favour of globalisation.

Candidate Policies. Candidates in elections do not always fulfil their promises but, for what it is worth, this is our best round-up of candidate policy pledges.


Impact on the Economy. Donald Trump’s call for a 45% tariff on trade with China is genuinely dangerous. The free flow of labour and capital around the globe means that the US economy has grown faster and inflation has remained low. In 1930, Herbert Hoover responded to the Great Depression with the protectionist Smoot-Hawley Tariff Act, which raised global tariffs by ten percentage points and reduced world trade by 19%.

Trump’s tariffs would not be offset by his proposed fiscal stimulus, which would replace some export earnings by domestic consumption and investment. The balance of Clinton’s policy proposals is moderate and should not change the economy’s likely course by much.

Impact on the Markets. If Trump does run large fiscal deficits in his first term, the Federal Reserve may have to counterbalance this by raising interest rates, hitting bond prices and potentially creating some short-term volatility. According to a Bloomberg poll, roughly one-quarter of investors would adjust their portfolios by raising cash, buying gold and cutting their exposures to equities and bonds. Neither candidate seems to do much to calm a growing sense of pessimism among investors, as US profit growth turns negative on the back of a strong dollar.

Studies have shown that past elections by themselves have not had a major impact on markets or the economy but this time we can’t be sure because in Donald Trump we have an extraordinary and unpredictable candidate.  As a Trump presidency would certainly be the biggest break from the political status quo since the Second World War, his victory could be a ‘market event’ on a similar or greater magnitude to Brexit. Investors should watch this race closely.

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