There has never been a more eagerly awaited election in living memory. American voters will line up on November 8th to cast their vote, most will be for Donald Trump or Hillary Clinton. Their decision will not simply affect political change in America, it will have far reaching global effects that will reverberate all the way to Australia. Small businesses across the country could be impacted, but the question is how?
Four years ago, the American public were debating between President Obama and Mitt Romney. Regardless of the impending candidate, global markets remained steady. Largely, it was a campaign without huge scandal. Conversely, both Trump and Clinton have attracted controversy. This is an election that has split not only America, but divided the world.
A Trump victory is guaranteed to cause shock (despite the close polls) and not simply in Democrats’ hearts. Trump has no political experience, and his policies are polarising. A Trump win is likely to cause a selloff in emerging markets (equities, currencies and bonds). There is already an existing correlation between Trump and emerging markets performance. When Trump increases his share in the polls, the emerging markets start selling off, and conversely rallying when Clinton was predicted to take the Presidency.
The Australian dollar could easily be impacted by the damaging domino effect if Trump is elected president. He is a novice in global politics and his penchant for isolationist foreign policy could send shockwaves across the world, especially in China, with which Australia has increasingly strong ties. The US is Australia’s third largest trade partner, behind China and Japan, and any trade tariffs Trump puts in place could be harmful to exports from Australia to the US. In spite of a Trump victory, there is a slight hope that an overwhelming Republican senate would be able to reign in their controversial leader, and steady the ship through his incendiary barbs. It will be a waiting game, but it is a safe bet to presume that the fluctuating Australian dollar could be affected adversely in the event of a Trump ascension.
Beyond political correspondents, financial traders across the world have been watching the election polls closely. The Federal Reserve is likely to take a tentative approach to the election, and wait and see who is elected. Consensus seems to hold that the Federal Reserve will remain on hold if Trump becomes President. Conversely, if Clinton wins, it will be seen as business as usual with a hike in December. Similar to Brexit, it seems unlikely, but that does not mean that Trump will not be elected President. Australian small businesses are reliant on global import and export, which will now be braced for price changes in the event of a fluctuating global economy.
The Australian economy remains stimulated in part by Chinese investment. Trump has at times coveted a close relationship with China, but also used provocative language that appears counter-productive: “China will be on notice that America is back in the global leadership business and that their days of currency manipulation and cheating are over.” Trump has no experience of international diplomacy, and his relations with China will have to be monitored carefully. Australian small businesses who utilise Chinese investment will hope that the future American president will continue to work to build diplomatic ties, rather than stultify them.
A Clinton victory should result in a global relief rally and ultimately a long-term decline in any economic volatility. However, there are real concerns that Clinton’s chances have been battered by a multi-faceted assault. Clinton’s campaign will have breathed a sigh of relief after she was once again not charged by the FBI. The markets will share her relief, with a sharp rally away from safe haven assets at the time of writing.
It was perhaps difficult to truly envision the concept of a Trump victory, even a few months ago. However, he resonates with a large amount of the American electorate that gloss over his flaws, and focus on his ability to cut to the chase.
Regardless of who is elected on November 8th, the world will wait with baited breath. Rarely has an American election had the potential for such wide reaching effects.
About the author
William Shepherd, Head of Treasury with OFX, an Australian online foreign exchange and payments company.