Yes, this is really happening. Just months after Britain voted to leave the European Union, in what was widely seen as a political rebellion, the US, has pardon the pun, “trumped” us all with a vote for Donald Trump as its new President.
While the dust has yet to settle from the shock result, which we tipped yesterday when we revealed that
insurance professionals in the US were planning to vote for Trump, the impact on the financial markets is already beginning to take hold. For while Brexit may have rattled the status quo and prompted the pound to plunge, the economic impact of a Trump Presidency is widely tipped to be just as far reaching.
So, while it’s all speculation at this stage (isn’t it always), what can we expect in the coming years in the financial sector?
The impact on inflation
It is expected that prices will rise in the USA on the back of Trump implementing protectionist policies. The US dollar has already fallen on the back of the vote – but it is unlikely the dollar would crash to the extent of the pound given that it has always been deemed as a safe haven. In the long term, however, there may be some danger relating to Trump’s approach to the Federal Reserve with the President openly criticising the institution as part of his campaign. Any shake-up to its independence would likely lead to confidence being lost in the US monetary system.
Britain, meanwhile, has seen the pound slump 18% since June 23 with inflation expected to rise significantly as a result and Brits to ultimately be worse off.
The impact on trade
Perhaps the biggest concern for the insurance sector post-Brexit has been the potential loss of passporting rights with the European Union. On a wider scale, failure to secure a free trade agreement with the EU would leave Britain trading with World Trade Organisation rules that place tariffs on exports and imports, pushing up prices.
Trump, meanwhile, has expressed anger at the North American Free Trade Agreement, believing it has hampered US industry. He is likely to have strained relations with China given his comments that the country has undervalued its currency to gain unfair trade advantages. Should he deliver on his pledges and cast aside many of these agreements to re-emphasise US industry, the general consensus among analysts is that, ironically, the US will be worse off and the average American notably poorer.
The impact on immigration
It’s fair to say that Brexit was, in large part, a protest against the UK’s immigration policy. As such, Theresa May finds herself attempting to gain tighter controls on immigration as the key to her negotiations. However, the potential impact on business – and again, the issue of passporting rights, has left many businesses floundering with the FCA recently revealing that more than 2,700 brokers operate under the EU’s Insurance Mediation Directive, which covers insurance intermediaries (see
article).
As for Trump, immigration has perhaps been his most divisive, and among his supporters his most successful, campaign note with headline-grabbing remarks about building a wall to shut out Mexican immigrants and calling for a shutdown on Muslims entering the country.
Given these remarks, a Trump presidency is likely to impact the US’s per capita economic growth rate and curtail entrepreneurship as the ability of the US to fill workforce gaps becomes more strained.
Of course there is much to be learned about both Brexit and Trump and their long-term impacts. Those in favour of both would argue that the benefits on “home turf” will overwhelm any losses “away”. Time will tell - but for now, the economic outlook boasts more than a few clouds in the sky.
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