Now that Ted Cruz and John Kasich have dropped out of the race, Donald Trump is all but certain to receive the Republican nomination in July at the party’s convention. A Trump candidacy, however, doesn’t make it easier for investors to anticipate the possible economic and market implications of a Trump presidency if he were to win the U.S. general election in November. Here are two important reasons behind the uncertainty:
- Trump does not necessarily subscribe to the conventional Republican orthodoxy of lower taxes, less spending and open markets made famous by President Ronald Reagan. Indeed, Trump’s economic agenda is more ideologically varied – with some tenets of Republican orthodoxy, such as lower taxes across the board, and with some Democratic principles, such as preserving Social Security and Medicare. Most famously, Trump’s extreme policy position on trade, which calls for a total overhaul of existing U.S. trade agreements and possible punitive action against U.S. trading partners, such as a 45% tariff on Chinese imports, does not belong to the platform of either party.
- Trump’s stated economic policies are at times conflicting and often changing, which also makes it difficult for investors to interpret the possible consequences. For instance, several weeks ago in an interview with the Washington Post, Donald Trump called for a total elimination of the U.S. $19 trillion debt over the next eight years, which is effectively infeasible without abolishing most government spending and substantially increasing taxes. At the same time, Trump has called for a tax plan that would increase the debt by $9 trillion (according to the Tax Foundation). Trump has since walked away from the pledge to exhaust the U.S. debt but it still leaves observers wondering where he is focusing: on austerity or on fiscal expansion?
What are investors supposed to do with a candidate whose economic ideology is divergent from that of his party’s, not to mention often inconsistent and fluid? At the very least, give it some time. Trump, who interestingly does not have much of a policy team to date, will have to hire experienced policy advisers who will help him solidify his economic agenda before heading into the convention – and certainly before he engages formally in debates with the other presumptive nominee, Hillary Clinton, a known policy wonk. At that point, we should have a better idea of what a Trump administration would mean for both the economy and the markets – for better or worse.