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Since the 2008 global financial crisis, growing numbers of people in developed countries feel their incomes are falling and that they’ve lost out from globalization and free trade. Though it’s enjoyed a stronger economic recovery than most of the rest of the world, the US is no exception.

So it’s no surprise that the two main US Presidential candidates are leaning towards more protectionist trade policies, which could create headwinds for global trade and economic growth.

us-election-global-trade

Both Mrs Clinton and Mr Trump have stated that they oppose the Trans-Pacific Partnership (TPP) in its current form. The TPP is a trade agreement between 12 countries (the US, Japan, Australia, Mexico, Canada, Vietnam and others) that was signed in February 2016. Estimates by economists suggest it could boost US incomes by around 0.5% of gross domestic product (GDP) over the period to 2030. If the TPP is rejected or delayed this would likely hurt the US marginally, while having a more substantial negative impact on all of the other signatory countries. However, Mrs Clinton has left the door open to an amended version of the agreement.

us-election-global-trade-mobile

Both Mrs Clinton and Mr Trump have stated that they oppose the Trans-Pacific Partnership (TPP) in its current form. The TPP is a trade agreement between 12 countries (the US, Japan, Australia, Mexico, Canada, Vietnam and others) that was signed in February 2016. Estimates by economists suggest it could boost US incomes by around 0.5% of gross domestic product (GDP) over the period to 2030. If the TPP is rejected or delayed this would likely hurt the US marginally, while having a more substantial negative impact on all of the other signatory countries. However, Mrs Clinton has left the door open to an amended version of the agreement.

Mr Trump has also expressed opposition to many older trade agreements and institutions such as the North American Free Trade Agreement (NAFTA, between the US, Canada, Mexico) and the World Trade Organisation (WTO). He has also voiced the possibility of trade barriers or tariffs on countries exporting large amounts of manufactured goods to the US (which in his view undermines the jobs and wages of US workers), such as China.

US presedential candidates are leaning towards more protectionist trade policies, which could create headwinds

Since the Second World War, economic policymakers in the US and Europe have favoured lower trade barriers between countries – facilitating a rise in the ratio of global trade to GDP from 25% in 1960 to a peak of 61% in 2008, before falling a little since then.  For investors, any disruption to trade flows is a negative for economic activity and potentially financial markets.

us-election-global-trade-graph

Since the Second World War, economic policymakers in the US and Europe have favoured lower trade barriers between countries – facilitating a rise in the ratio of global trade to GDP from 25% in 1960 to a peak of 61% in 2008, before falling a little since then.  For investors, any disruption to trade flows is a negative for economic activity and potentially financial markets.

us-election-global-trade-graph

Protectionism could become a headwind 

Trade policy may well be the biggest impact of a Trump presidency: while the US constitution ties the President’s hands on domestic matters, the White House has far more freedom in dealing with international issues. Our research indicates that under a scenario of full-scale isolationism, global GDP could be reduced by up to 10% over 2017-18.

We regard such an outcome as highly unlikely, given the many checks and balances in the US political system. Nonetheless, there is a risk that a Trump presidency could lead to an increase in trade restrictions,with the introduction of  tariffs and other barriers to entry on some imports, possibly leading to a ‘trade war’ and retaliation from US trade partners

More obstacles to global trade would likely lead to slower growth worldwide, particularly in poor countries, although it’s hard to quantify the impact. For investors, a further slowdown of global trade could be negative as it would weaken corporate revenue growth, margins and earnings – none of which would be good news for equity or credit markets.

Finally both candidates have made proposals to curb immigration to the US. If enacted, a restrictive immigration policy could have detrimental effects on US sectors like construction and agriculture. In the long run, a slower-growing US workforce would likely lead to wage inflation that might undermine corporate profit margins if companies are unable to pass rising costs on to consumers in the form of higher prices. 

IMPORTANT INFORMATION

Issued by Adam & Company Investment Management Limited (Adam), which is authorised and regulated by the Financial Conduct Authority. Adam is registered in Scotland number SC102144. Financial Services Firm Reference Number 141831. Registered Office: 25 St Andrew Square, Edinburgh EH2 1AF.

The value of investments, and the income from them, can go down as well as up, and you may not recover the amount of your original investment. Past performance should not be taken as a guide to future performance. Where an investment involves exposure to a foreign currency, changes in rates of exchange may cause the value of the investment, and the income from it, to go up or down.

The information on this webpage is not intended as an offer or solicitation to buy or sell securities or any other investment or banking product, nor does it constitute a personal recommendation. The information is believed to be correct but cannot be guaranteed.

Any opinion or forecast constitutes our judgement as at the date of issue and is subject to change without notice. Nothing in this material constitutes investment, legal, credit, accounting or tax advice, or a representation that any investment or strategy is suitable for or appropriate to your individual circumstances. The analysis contained within this webpage has been procured, and may have been acted upon, by Adam and connected companies for their own purposes, and the results are being made available to you on this understanding. To the extent permitted by law and without being inconsistent with any applicable regulation, neither Adam nor any connected company accepts responsibility for any direct or indirect or consequential loss suffered by you or any other person as a result of your acting, or deciding not to act, in reliance upon such analysis.

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IMPORTANT INFORMATION

Issued by Adam & Company Investment Management Limited (Adam), which is authorised and regulated by the Financial Conduct Authority. Adam is registered in Scotland number SC102144. Financial Services Firm Reference Number 141831. Registered Office: 25 St Andrew Square, Edinburgh EH2 1AF.

The value of investments, and the income from them, can go down as well as up, and you may not recover the amount of your original investment. Past performance should not be taken as a guide to future performance. Where an investment involves exposure to a foreign currency, changes in rates of exchange may cause the value of the investment, and the income from it, to go up or down.

The information on this webpage is not intended as an offer or solicitation to buy or sell securities or any other investment or banking product, nor does it constitute a personal recommendation. The information is believed to be correct but cannot be guaranteed.

Any opinion or forecast constitutes our judgement as at the date of issue and is subject to change without notice. Nothing in this material constitutes investment, legal, credit, accounting or tax advice, or a representation that any investment or strategy is suitable for or appropriate to your individual circumstances. The analysis contained within this webpage has been procured, and may have been acted upon, by Adam and connected companies for their own purposes, and the results are being made available to you on this understanding. To the extent permitted by law and without being inconsistent with any applicable regulation, neither Adam nor any connected company accepts responsibility for any direct or indirect or consequential loss suffered by you or any other person as a result of your acting, or deciding not to act, in reliance upon such analysis.