Chance Of Trade Wars Very Real If Trump Wins: Alastair Newton, Alavan Business


Chance Of Trade Wars Very Real If Trump Wins: Alastair Newton, Alavan Business

In a chat with ET Now, Alastair Newton, Co-Founder & Director, Alavan Business, says if Clinton wins top of her foreign affairs agenda is going to be Asia and she is likely to have some grounds to make up in Eastern, South-East Asia as far as the credibility of the US as a reliable partner is concerned. 

Edited excerpts 

Do you really believe the opinion polls? On Friday, opinion polls were telling us a different story, now the opinion polls are scripting a different name. 

Well I think we need to be very, very cautious about opinion polls. But it does look as if the momentum which Donald Trump had before the email investigation against Hillary Clinton came to an end sometime towards the middle of last week. Since then, we have seen a bit of reversal. Frankly, we do not have much to go on the opinion polls. I still think that the opinion polls are less than clear cut on one important question and that is whether we are going to see an election outcome which has Hillary Clinton winning the popular votes but failing to win the electoral collage. And as far as we can tell from all the data we have from all polls which have been done, that remains a possibility but most of the experts would agree that right now Clinton is the clear favourite to win this election. I saw this morning that Nate Silver’s latest forecast is now giving her a 70% probability compared to a 65% probability last Friday. 

We have seen the basic structure of the US constitution. Individuals are important but individuals frankly do not matter. There is a Senate. There is House of Representatives. So given the fact that this election is centred around personalities, do you think personalities will have a very little role to play when it comes to policy making in US? 

I do not actually. I think once we get this election out of the way, we will back to something close to politics as usual in the US on the assumption that we are correct in forecasting a Clinton election victory. Now, one of the effects of her decline in opinion polls in the last three weeks or so has been that it now looks less likely that the Democrats will have a majority in the Senate. Analysts are saying that the Republicans will retain their majority with the Democrats taking net gains only to 48. This clearly matters significantly to Clinton presidency especially since the Republicans will almost certainly keep control of the House of Representatives. 

Let us talk about what the post election scenario is going to be. If indeed it is a Clinton win and we sincerely hope out here in India it is, what should the world need to worry about? What would be trade relations with China, with other emerging markets like Brazil or for that matter Russia and internal policies? 

Well the first thing the markets will worry about on the assumption that we do get a Clinton victory in the next 24 hours and let us keep in mind that we could have contested results and Trump may not accept the result. There may be re-counts. We could have a 2000 like scenario. 

But if we get a quick outcome, markets will immediately turn their attention to the Federal Reserve and certainly from the perspective of the number of the countries, the emerging markets are going to be something which weighs the markets sentiment. 

If we look at Clinton’s foreign policy priorities, top of her list is going to be Asia and she is likely to have some grounds to make up in Eastern, South-East Asia as far as the credibility of the US as a reliable partner is concerned on the assumption that the Trans-Pacific partnership will not get ratified between now and the end of Obama’s term by the lined up Congress. 

In other words basically between election and some time towards mid-December. I would not put a better than 50% probability on that. Clinton nevertheless is very focussed on Asia. Let us remember that she and then Defence Secretary Bob Gates in 2010 were the creators of the strategic pivot. 

Her second priority is going to be Russia. Now somewhat unconventionally, I actually think that Putin has no interest in Trump presidency. Trump is highly unpredictable and much as he may dislike Clinton, the fact is that the Clinton is predicable and policymakers rather like markets do not like uncertainty. Putin will know what is dealing with with Clinton. It is going to be tough there is no doubt about it. I would be (22:08) to see more US sanctions against Russia over Russia meddling in the US election process. Third priority will be Middle East. 

What happens in case of a Trump victory? Will he be able to make US a closed economy if if he comes to power because there are other forces at play? I am sure this is more talk than actual action that we will see from Trump if indeed he does win? 

Well first of all, I do not think he can build a wall around the US but it is actually quite scary what he can do. I did a lot of work on this back in July looking at what powers the president actually has in trade relations. First of all, he can certain name China as a currency manipulator. 

Secondly, he can impose emergency tariffs of up to 15% against imported goods for a period of up to six months. The problem with the emergency tariffs is that they tend not to be temporary, they tend to stay in place after their supposed expiry date. 

Thirdly, he can without authority from Congress, withdraw the US from international treaties -- be it NAFTA, TPP etc. Were it to be ratified, the Paris Climate Change Accord, any of those could be dead in the water.  And the most important thing to keep in mind about all of this is that any new first-term US president has one and only one real priority on the 21st January, the day after being sworn in and that is to stop considering how do I win a second term? Nobody does that by breaking all their pre-election promises. There is a lot of iffy stuff that Trump could do on trade along the lines I have just outlined and I fear that inevitably, not least because of the public mood in America, he would start trade wars and those trade wars would have a negative impact not only on the American economy perhaps perversely from his perspective but on the global economy as a whole because you can bet that China at least would retaliate. 

Let us look at what markets ideally want. Whereas markets want stability and predictability, they always want more tax cuts, lower interest rates and indirect ways to jumpstart the economy and that is what Donald Trump is promising. What Clinton is promising is that she would go to a war with big banks, she would minimise the profits which big pharma companies are doing and which some would argue is anti capitalism so why are markets ignoring the obvious negatives which a Democratic victory also will bring about? 

Well first of all, I think the prospects of the global trade war is a lot more scary than domestic measures which Clinton may or may not be able to get through Congress. Just keep in mind as we have already intimated that any US president is to an extent going to be constrained by Congress and that is particularly on domestic policy. I do think Hillary Clinton will probably manage to do some of the things which she has said she is going to do. 

Just on the question of Wall Street, let us keep in mind that it will be more precise what she has said is she would look to extend Dodd-Frank to the shadow banking sector rather than going after the Wall Street big banks per se. 

On pharmaceuticals, if you look at the proportion of American GDP which is spent on medical national health care at the moment it is actually very scary and there are some fundamental problems there which I think everybody acknowledges needs to be addressed, the Obamacare has not been the solution to the cost of healthcare in the US, more needs to be done to bring down healthcare costs overall. 

One more thing I would say about this all is that we need to consider what Clinton may be able to do in terms of genuine deal making with the Republicans. 

Unlike Obama, I do expect her to work hard, to try to bring law makers into compromise positions. It is certainly not going to be easy but I do see some scope for her to reach some sort of significant agreement with Paul Ryan assuming he survives as the Speaker of the House which is not given, which would cover a package of measures.

First of all, looking at tax, corporate tax rates, Clinton has not said she would reduce them but may, you should not rule that out for one moment, close some tax loopholes and repatriation of corporate overseas earnings to America. 

While India has to worry about what the global repercussions are going to be following whoever takes over the Oval Office, we have a bigger fear closer home and that is escalating tensions with states like Pakistan. How far is the situation going to escalate and could there be some economic impact? 

The thing which is troubling me most about the Indian-Pakistan tensions at the moment is that the markets have taken their eye off this since the immediate dust settled after the Indian counterstrike on the 29th of September and yet as you in Mumbai know better than I, there is still regular shelling going on across the border and tensions in the border area remain high. 

Furthermore, there has also been some backlash in cultural circles in India and with a lot of pressure on Bollywood to drop Pakistani actors from films and in Pakistan, we have censors in Islamabad more or less blocking out all of Indian movies at the moment. So there is a lot going on and the domestic circumstances of both countries are somewhat worrisome when it comes to de-escalation. 

Some important state elections coming up in India next year in Uttar Pradesh and Punjab. The Modi government is not as popular as it was two and a half years ago understandably. The economy is doing well. There have been a lot of unrealistic expectations not only among market participants but also among Indian voters as to what the Modi government would deliver and how quickly it would deliver that. It is still a work in progress with the key issue of GST. 

It does appear that the strike back against Pakistan on the 29th of September was very popular with a large number of Indians and not just BJP supporters. So if one of the terrorist groups which I do not believe to be totally under the control of the Pakistan military or the Pakistan government, strikes again in India, it could be another Mumbai October 2008 terrorist incident. If that were to happen, it would be very difficult for the Modi government not to hit back pretty hard against Pakistan despite the risk of further escalation. 

I do think markets need to continue to watch this carefully to pay attention obviously there is not a lot you can do in terms of positioning for it. 

Source: The Economic Times

By Pathay Singh on 11/08/16