23 to 29 January: The Appetiser

Many questioned whether Donald Trump would follow through with the wide, and often controversial, range of promises made during the election campaign. His first week in office was busy, but leaves much to follow on the key areas of trade and fiscal stimulus.

Over the first 7 days, the new POTUS announced 17 “Presidential Actions”. These included:

5 Executive Orders – the most formal “actions” available to the President, which are recorded in the Federal Register and considered legally binding (subject to legal review).

• Obamacare Repeal; “Minimizing the Economic Burden of the Patient Protection and Affordable Care Act Pending Repeal”
• Infrastructure Fast-Track; “Expediting Environmental Reviews and Approvals for High Priority Infrastructure Projects”
• Immigration Enforcement; “Enhancing Public Safety in the Interior of the United States”
• Mexican Wall; “Border Security and Immigration Enforcement Improvements”
• Anti-Lobbying; “Ethics Commitments by executive branch appointees”

11 Presidential Memoranda – not legally binding but outlining the administration’s position on a policy issue. These encompassed:

• Defeating ISIS.
• Reducing regulatory burden on domestic manufacturing.
• Restarting construction of various oil pipelines (using materials sourced from within the US)
• Banning US aid to international health groups that promote abortions.
• Withdrawal from the TPP trade agreement (NB: this was never approved by congress).
• A hiring freeze for non-military Federal agencies.

There was also 1 Proclamation recognising January 22-28, 2017 as National School Choice Week.

It should be said that executive orders (where the President uses his personal authority rather than passing a measure through congress) have been implemented by all 45 US Presidents, including Obama on 276 occasions. Indeed, Obama delivered 9 in his first 10 days in office. However, the tone and scope of such orders was starkly different- including closing Guantanamo Bay, equal rights for women and same-sex couples and addressing climate change.² We therefore think the past week’s events confirm a change in paradigm.

However, equally, there was a lot Trump didn’t do. He didn’t impose tariffs or label China a currency manipulator, nor did he provide any clarity on fiscal policy (Speaker Ryan stated the House will have completed a tax reform package by the August recess).

So what to conclude? For the US, in the context of a labour market at full employment, we think there will almost certainly be higher inflation. In terms of growth, whilst there is probably a bias towards a short-term growth acceleration, this depends on trade (negative) and fiscal (positive) policy. Longer term, we are sceptical reduced regulation and infrastructure spend can overcome the forces of anti-immigration and structural stagnation.

For the rest of the world, some perspective is useful. In the special cases of Canada and Mexico, exports to the US represent circa 20% of GDP and the impact of any protectionist measures would therefore be extremely significant. The same dynamics could hold for individual companies and sectors in the US supply chain. However, for other major trade partners, the share of US exports to GDP is much lower (2-5% for China, Japan, Germany and the UK). Moreover, most of the rhetoric has been aimed at China rather than broader trade partners; we expect a series of bilateral negotiations with a more muted impact.³

This week is central bank heavy – BOJ on Tuesday, FED on Wednesday, BOE on Thursday.

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