President Trump: Implications 16 November 2016

Donald Trump won...but Hillary Clinton did not lose Source: New York Times

Did Trump win or Clinton lose? Democrat Republican Total Turnout 2016 (Clinton/Trump) 63.8 (47.8%) 62.1 (46.5%) 133.4 (53.6%) 2012 (Obama/Romney) 65.9 (51.1%) 60.9 (47.2%) 129.1m (54.9%) -2.1 +1.2 +4.3 Source: Wikipedia

A “rust-belt” strategy Source: New York Times

How did Trump win? MI, WI, PA, FL OH, IA Source: New York Times

Republican swept the Congress Source: New York Times

Republicans win White House and Congress Trump 290 Clinton 228 Popular Vote Trump 47.3% Clinton 47.8% Senate R-51 D-48 House R-239 D-193   Clinton Trump Others 18-29 (19%) 55 37 8 30-44 (25%) 50 42 45-64 (40%) 44 53 3 65 and over (15%) 45 2 Source: CNN

Trump elected president by White Blue Collar workers in the Rust Belt Critical Swing States Electoral Vote Trump (%) Clinton (%) Actual vote difference Florida 29 49.1 47.8 119,770 Pennsylvania 20 48.8 47.6 68,236 Ohio 18 52.1 43.5 454,983 Michigan 16 47.3 11,837 Wisconsin 10 47.9 46.9 27,857 Total 93   682,683 Total US vote 60,371,193 61,039,676 668,483 Exit polls 8 Nov: Trade not immigration got Trump elected Illegal immigrants working in the US should be allowed to apply for legal status? 70% of respondents said yes. Support for the wall along the Mexican border? Only 54%. Trump voters: top issue -- economy (46%); immigration 17% 57% of Trump voters say trade takes away jobs.   Source: CNN, BBC

Smoot and Hawley were both Republicans US import volume fell 40% in the two years following Smoot-Hawley Act June 1930. Since World War II, US took the lead in liberalizing trade and supporting globalization: established GATT (WTO), IMF and WB. Prof Peter Navarro (UC-Irvine) Trump advisor said S-H is protectionist tariff but Trump’s is a “defensive tariff” Source: Salvatore: International Economics, 10th Edition © 2010 John Wiley & Sons, Inc.

Market returns weak under Republicans (but markets chose to be bullish; for now) Source: Phatra Securities

Good Trump vs Bad Trump Key policy issues Details *Trade Renegotiate/withdraw from NAFTA (and WTO?) Name China a currency manipulator (and impose punitive tariff) Withdraw from TPP Identify trade abuses that unfairly impact American workers and use every tool to end those abuses *Tax CIT to 15% from 35% Simplify PIT and cut rates across the board Repeal estate taxes *Infrastructure Increase infrastructure investment Healthcare Repeal Obamacare Financial regulation Repeal Dodd-Frank Energy Lift restrictions, allow energy investment/infrastructure

Trump tax cuts: deficit surges

Fiscal policy—personal income tax cut

Income distribution effects

Trump was a game changer

Thai vs US bond yields

Asia is dependent on trade Exports to China (2014)   Export to China ($bn) Rank % of Total Total exports ($bn) Japan 131 1st 18.3 714 Korea 142 24.4 583 ASEAN 163 12.5 1,254 Thailand 30 240 Source: OEC

Protectionism up 10%  World GDP down 1 Protectionism up 10%  World GDP down 1.75%; World trade down 15% (IMF WEO Oct 2016) IMF argues that a country (A) may have an incentive to impose tariffs. Its currency appreciates and household consumption rises (but GDP will fall from reduced investment). Affected trading partner (B) will likely retaliate to reduce its trade deficit and offset earlier depreciation of its currency. But its exports and GDP fall. Taking this to the global level IMF assumes protectionism from TBs and NTBs cause import prices to rise by 10% over three years. Its model lowers global output and consumption by 1.75% after five years and 2% over the long run. Global trade volume falls 15% after five years and 16% in the long run. Rising import prices initially raise global inflation but after year four, a decline in demand lowers inflation globally in the long run

Investment implications The fiscal policy, if implemented, is positive for US equity (at least in the short to medium term). The global equity could benefit from higher US demand. Commodity would also benefit from higher inflation and investment demand. Higher inflation, growth Lower CIT rate (despite winners and losers) would boost earnings by 23-30% easily Rising bond yields, strong dollar are negative for bonds, defensive stocks, But how much is already in the price? Protectionism, if implemented, will be negative for global growth and particularly negative for EM and Japan equity. Negative for growth and inflation in the US

How likely is the protectionism policy? Key questions How likely is the protectionism policy? Net implications to the Fed fund rate? Will the Fed raise the rates? How far the bond yield will rise Thai bond yield? BoT?