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Mecardo Blog

Trump has won, now what?

Posted by Andrew Whitelaw on 10 November 2016
Andrew Whitelaw
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As you will be aware the United States have elected their 45th President. In what can only be considered a heated contest, Trump was victorious. The media and the pollsters got it all wrong, but they were also wrong about Brexit. During the campaign, policy took a back seat to personal attacks. In this update, we will highlight the initial obvious impacts likely to be felt on agriculture.

International Trade

A large part of Trump’s (and Clinton) platform trump.jpgfocused on international trade agreements. The fear in many parts of the USA is that jobs have been moved overseas, which in manufacturing is largely true.


The Trans-Pacific partnership (TPP) which is yet to be ratified is now likely consigned to the dustbin, and we would be extremely surprised if the agreement was ratified during the period before Trump receives the keys to the white house.

The TPP has taken seven years of negotiations to get to its current point, and without the US signing up will be shelved. As an exporting country, the TPP was in the main an attractive proposition for Australia, as it removed trade barriers with more than 18,000 tariffs due to be removed, and encouraged the use of electronic customs forms to improve efficiency.


“modify or cancel any business or trade agreement that hinders American business development, or is shown to create an unfair trading relationship with a foreign entity”
President-Elect Trump, 2015


The TPP was in Trump’s gunsights, and it is likely that it will be heavily modified or scrapped.  It must be noted that even with a Clinton victory the TPP would have also be subject to modification as she was also not a fan.

President-Elect Trump has also discussed increasing tariffs on imports to around 35% on imported goods, it is not yet known if this will apply to Australia.

The current Australia-US Free Trade Agreement (AUSFTA), attracts 0% tariff up to 418,214mt on beef, then 21.12% above this level. It is however planned that this tariff would be removed in 2022. If the AUSFTA is re-examined, and we lose our preferential treatment then this would heavily impact Australian cattle prices. In respect to sheep meat Australia has a 0% tariff under the AUSFTA, whereas for others without special agreements a tariff of 0.7c/kg for lamb and 2.8c/kg for mutton applies.

An additional risk with a tariff applied to imports, would be a slowing of growth in China. The likely effect would have flow on effects to the global economy, and with our reliance on China this would have immense ramifications on our local economy and all products we export to China.


Uncertainty

There will be a high level of volatility in the coming weeks and months, as the market reacts to the new reality. The fact that Trump has very limited experience in either politics or foreign policy will leave a lot of uncertainty.

It is likely that this uncertainty will create short to medium term fluctuations in financial markets, which will flow onto ag markets, which is especially worrying at a time when grain prices are being held down by record stock levels.

This volatility has been evident yesterday with huge swings in commodities, FX and share prices. This volatility will hopefully reduce as more certainty is provided by the US government (hopefully).

American Agriculture

As we all know American agriculture is heavily subsidised, and even a cursory glance at the election map gives an indication that a huge amount of support for Trump is in the rural and regional areas. It is highly unlikely that there will be any scramble to cut subsidies to the Republicans largest support base. map.png

On the other hand, Trump, has called for the deportation of large swathes of illegal immigrants back across the Mexican border. This will heavily impact American agricultural which has been reliant on cheap illegal labour.

My final view

The media has been full of scare stories about Trump during the election campaign, and the test will now come to see whether the concerns about his presidency were legitimate or whether his contentious views during the election were just bravado.

It is with great hope that candidate Trump is a different man from President Trump, and that he will work to unite what seems from the outside to be a fractured and divided country.  

Trump wouldn’t be the first candidate for politics who says one thing to get elected and then enacts a different agenda when in office; this could be said for any of the recent elections be they Australian or overseas.

So, perhaps we take a deep breath, relax, sit tight and wait and see. Overnight the moves on the international share markets remind us that at the moment the one certainty is uncertainty, and anyone who tries to predict exactly what will happen is brave.

Topics: markets, Politics