US Election: Initial Economic Implications (original) (raw)

At a Glance

The US electorate has chosen former President Donald J. Trump to serve as the 47th president of the United States. The now–president elect won an Electoral College majority and is on track to win a majority of the national popular vote as well. As of the writing of this article, it also appears likely that President Trump’s Republican Party will carry both houses of Congress, implying a legislative change of direction in addition to a change in executive branch policies.

We have a few initial thoughts to share on the likely macro implications of this election. We caution, however, that our analysis is currently limited by the nature of the incoming administration’s policy communications, which have primarily focused on objectives and intent rather than detailed frameworks. We expect to share additional insights in the coming months as potential policy directions become clearer.

It seems that post-globalization will shape the new architecture of geopolitics for the foreseeable future.

During President Trump’s previous term, this same anchor of objectives and intent (rather than policy frameworks) made for a generally more volatile policy environment, particularly with respect to tariffs and trade policy. To use an analogy, the US Federal Reserve has an objective to achieve price stability and full employment, but the combination of interest rate and balance-sheet policies can become quite volatile as the environment evolves. We believe this analogy will be useful to bear in mind when assessing the likely policy actions of the incoming administration.

Within our own longer-term macro trends framework, we think the election pushes the objectives and intent of the United States further along the path toward post-globalization. Though we are cautious not to overextrapolate based on a single electoral outcome, this latest data point appended to a sequence of data points around the world increases our conviction that post-globalization is not a transitory deviation from the general path of globalization (i.e., the post–World War II and subsequent post–Cold War consensus). Rather, it seems that post-globalization will shape the new architecture of geopolitics for the foreseeable future.

For the US, post-globalization manifests as a return to a Westphalian framework in which nation-states are the primary political decision-making unit. (We do want to clarify here that a return to such a framework does not necessarily equate to an embrace of isolationism or autarky.) The economic and business implication of this Westphalian framework is that the unlimited free movement of goods, people, and capital across national borders will no longer be an unquestioned objective. The emergence of trade (the movement of goods) and migration (the movement of people) as critical issues in this presidential campaign offers evidence of this shift; both issues would have seemed fringe or irrelevant in the 2000s or early 2010s.

With that context in mind, we also remind readers that the movements of goods and people are clearly intertwined with the movement of capital. Capital flow imbalances are the necessary obverse of trade imbalances. Some economists even argue that managing capital flow imbalances may be a more effective means of reducing trade deficits than direct trade interventions (e.g., tariffs). If one of the incoming administration’s general objectives and intents is to address the flows of goods and people, then we caution that a reexamination of imbalanced capital flows might logically enter the scope of policy discussions.

The reliance of China and Western Europe on US demand (via exports) is a clear macroeconomic vulnerability in the near term.

Outside the US, the broader implications of the apparent US acceleration toward post-globalization are two-fold.

The reliance of China and Western Europe on US demand (via exports) is a clear macroeconomic vulnerability in the near term due to both likely changes in US trade policy and exposure to inflections in the US business cycle. Europe is already reckoning with increasing competition from Chinese goods and businesses, both inside and outside the Chinese market (see our recent Gavekal article on this topic). The intensity of that rivalry will increase if the primary provider of “unlimited” global demand (i.e., the US) starts to limit its net purchases.

America’s continued march toward post-globalization will also predicate a shift in geopolitical alignments across the world’s three big economic regions—the US, Western Europe, and China.

A US orientation that remained globalist instead of Westphalian-nationalist would have left open the door to geopolitical arrangements such as a “trans-Atlantic” alliance vs. a China+ alliance that looked like a Cold War redux. This arrangement is viewed as a likely scenario by many, and some of the recent trade activities of the various BRICS countries (and others) have encouraged or supported this bipolar framing of geopolitics. However, we think the recent US electoral outcome further closes the door on a bipolar rivalry scenario. Instead, the election opens wider the door to a multipolar geopolitical framework with at least three distinguishable centers anchored by the US, Western Europe, and China.

A multipolar geopolitical structure has the potential to be very stable and peaceful—a kind of equilibrium dynamic for global power.

A transition to a tri/multipolar geopolitical landscape will be relatively more challenging for Western Europe than the US and China, owing to the multipolarity that sits underneath the EU umbrella. The eurozone crisis already raised questions around whether Europe’s hybrid political structure needed to evolve into a more muscular union. Though some of those questions faded as monetary largesse covered the problem, we suspect global geopolitics will force Europe to confront the question of an ever-greater union once again.

For China, we believe that multipolarity is actually one of the better available outcomes (if status quo globalization is taken off the table). A multipolar geopolitical structure has the potential to be very stable and peaceful—a kind of equilibrium dynamic for global power. We further speculate that overall relations between China and a Westphalian-nationalist US may eventually settle into a kind of peaceful and transactional coexistence, even if the transition path will likely appear bumpy.

As we said above, we expect to share additional analysis as policy becomes clearer. In the interim, we encourage businesses to consider scenarios in which post-globalization accelerates, geopolitical alignments disaggregate, and frictions around the movement of goods, people, and possibly capital increase.

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