Assassination attempts, Trumponomics, Presidents dropping out and the impact on New Zealand.
The recent attempted assassination of former President Donald Trump, and President Joe Biden dropping out of this years US elections have rocked the political and financial worlds, sparking market expectations about Trump's possible electoral triumph. The Dow Jones Industrial Average peaked as the news leaked with PredictIt showing a notable rise in Trump's likelihood of winning the November election.
US Economic Recent Events
Right now, the US economy is entering a notable transition phase. A recurring problem is inflation, which is now showing indications of abating. From its peak of 9.1% in June 2022 to 3% in June 2023, the consumer price index (CPI) has declined, which has generated Federal Reserve forecasts of interest rate reduction. This change in tight monetary policy to a more accommodating posture seeks to promote economic activities.
Strong results have come from major US banks, including Goldman Sachs and JPMorgan Chase, which have seen significant profit rises. Goldman Sachs CEO David Solomon has shown hope for the US economy, suggesting a "strong landing" amid continuous inflationary pressures Goldman Sachs CEO David Solomon expects a 'strong landing' of the US economy (Observer, 2024).
Effect of Trump's economic policies
Donald Trump's economic practices are being closely examined as he pushes for a possible presidential comeback. Emphasising high tariffs and broad tax cuts, Trump has outlined a scheme to "make America wealthy again". Economists warn, meanwhile, that these policies might raise rather than lower inflation.
Trump's idea to apply a 10% baseline tariff on imported goods seeks to support the home industry. Experts counter that such tariffs would raise consumer prices and damage the economy. Leading US economist at Oxford Economics Bernard Yaros said that “these tariffs could cause instant inflation increases” (Experts warn that Trump's economic policies could worsen inflation (The Guardian, 2024).
Moreover, Trump's tax cut proposals, which include adding fresh cuts and extending past ones are anticipated to raise the US budget deficit greatly. Owen Zidar of Princeton University and other economists believe these tax cuts might encourage economic activity at the expense of higher inflation Experts warn that Trump's economic policies could worsen inflation (The Guardian, 2024).
The United States' national debt currently stands at approximately $33.7 trillion as of July 2024. This staggering figure has an annual interest bill of around $750 billion, nearly 15% of the federal budget. Whilst this level of debt is often viewed negatively, it's important to understand that government debt can create a cycle of economic activity. For instance, when the government borrows to fund projects or programmes, it injects money into the economy, potentially stimulating growth, creating jobs, and generating tax revenue. If managed prudently, this cycle can lead to positive outcomes such as improved infrastructure, enhanced public services, and increased economic stability despite the burden of debt servicing.
Reducing government spending, deregulating businesses, tightening immigration policies, and boosting domestic energy output comprise Trump's general inflation agenda. Their immediate impact and viability, though, are still up for debate. Tighter immigration laws, for instance, can cause pay increases in some industries, which raises costs even more.
Possible impact on New Zealand
The political and financial changes occurring in the US could have several effects on New Zealand:
1. New Zealand exports dairy and beef, among other items, to the US under trade relations and tariff policies. Higher tariffs under a possible Trump presidency could cause these goods to cost American customers more, lowering demand.
2. . Should Trump’s proposals increase US manufacturing, New Zealand exporters of raw materials and components could benefit with increased opportunities. Trump's actions may cause US inflation and interest rates to rise, this might knock on to world financial markets, including New Zealand. A strong US dollar resulting from higher US interest rates would change the dynamics of the US currency.
Fergus McDonald, Head of Cash and Bonds at Nikko AM NZ, adds that “A lower New Zealand dollar against the US may improve returns to exporters but increase the cost of NZ imports that are priced in US dollars.”
3. Economic Stability and Investment: The effects of Trump's proposal on the US economy could affect investor sentiment worldwide. Being a smaller, open economy, New Zealand could see changes in foreign investment inflows and outflows depending on the US's stability and economic potential.
Trump's attitude on trade and international relations could cause geopolitical problems, influencing world trade routes and economic alliances. Dependent mostly on foreign trade, New Zealand may have to negotiate these challenges carefully to maintain its economic stability.
Although Trump's initiatives seek to boost the US economy, they risk raising inflation and souring international trade relations. For New Zealand, these developments call for strategic planning and close observation to minimise negative consequences and capitalise on the opportunities that will be created.