From afar, the campaign being waged by Democrat Hillary Clinton and Republican Donald Trump to become America’s 45th president may seem particularly volatile. Considering the candidates: a former First Lady and Secretary of State with over two decades in national politics (and all the baggage that comes with that) versus a property mogul turned reality star who has grown his brand in recent years by lending his name to conspiracy theories, such as the origins of President Barack Obama.
It is no wonder that treasurers and financial professionals around the world are attempting to move beyond the absurdist rhetoric that typically accompanies a presidential race in order to determine what they can expect from the hypothetical administrations of either Clinton or Trump.
With Clinton, it may be easier to predict the nature of her leadership, considering her husband’s eight-year tenure in the White House during the Nineties. Many assume that her administration would represent the proverbial “third term” for Barack Obama. However, with the success of Vermont senator Bernie Sanders – a self-described democratic socialist – in the Democratic primaries, Clinton allies helped draft a party platform that has included more left-leaning language. This will possibly force president Hillary Clinton to adopt policy positions that many experts would have previously said were too ideological for her to enact. This shift has already started, with Clinton dropping her support of the oft-discussed and much maligned Trans-Pacific Partnership (TPP), the trade agreement between the US, Japan and 10 other Pacific Rim countries – excluding China – signed a year ago.
Like Obama, Clinton has zeroed in on Wall Street and is also arguing that there are still too many risks emanating from top firms, particularly when it comes to money backed by taxpayer funds. According to her statement in July 2015, years on from the global financial crisis persistent risks that could yet cause another crisis are still present in our financial system.
“Banks have paid billions of dollars in fines, but few executives have been held personally accountable. ‘Too big to fail’ is still too big a problem,” said Clinton. “Regulators don’t have all the tools and support they need to protect our economy. To prevent irresponsible behaviour on Wall Street from ever again devastating Main Street, we need more accountability, tougher rules and stronger enforcement.”
In trying to work out how Clinton economic policy might be drafted, one may attempt to predict who the former cabinet secretary might appoint to run the treasury department. With anti-Wall Street rhetoric at a fever pitch, the run of banking heavyweights such as Tim Geithner, Hank Paulson and Larry Summers ending up in the job seems to be at an end, at least temporarily.
POLITICO magazine has speculated that Clinton could instead turn toward Silicon Valley, with insiders claiming that former treasury department staffer turned Facebook chief operating officer (COO) Sheryl Sandberg is at the top of the wish list. Former Commodity Futures Trading Commission (CFTC) chief and campaign chief financial officer (CFO) Gary Gensler, Federal Reserve board of governors member Lael Brainard, current secretary of health and human services Sylvia Burwell and Gene Sperling, director of the National Economic Council (NEC) under both Obama and Bill Clinton, are seen as other possibilities.
Additionally, a long sought-after shake-up at the Federal Reserve is perhaps in the offing, as Clinton endorsed a plan advocated to end the influence of private banks in contributing to Fed policy, including the raising or cutting of interest rates. The Huffington Post highlighted earlier this year that private banks do not have a significant influence over the Fed’s regional outposts through board of director positions. “Directors selected by bankers help choose the president of each Fed outpost,” it noted. “These presidents, in turn, serve on the key committee that sets interest rates. Clinton called for getting bankers out of that process.”
It would seem any conjecture that financial policy under Hillary Clinton will attempt to complete work begun by Barack Obama is largely well-founded. Yet despite that, the influence of Wall Street on domestic fiscal policy will be difficult to eliminate; particularly as Chuck Schumer, Democratic senator of New York, is odds-on favourite to take the reigns as Senate Majority Leader in January. His ties to Wall Street are the stuff of legend, and he will likely provide the banks with a degree of cover.
The fiscal policy of a Trump administration is as difficult to predict as the man is himself. Trump secured the nomination on the back of largely rejecting traditional Republican policy on everything from Wall Street to trade; often finding himself closer philosophically to Bernie Sanders than to fellow contenders Jeb Bush or Scott Walker.
The bulk of Trump’s statements regarding economic policy are rooted in his protectionist philosophy: the idea that the US is coming out on the losing end of trade deals such as the North American Free Trade Agreement (NAFTA) and with nations like China. While Sanders also contributed to the protectionist tone of campaign 2016, it has become a Trump hallmark.
In the June 2016 edition of GTNews’ Global Treasury Briefing, Mindy Herzfeld, contributing editor at Tax Analysts and formerly a senior manager at Deloitte Tax was quoted as follows; “Free trade, lower taxes, and no tariffs have been core to Republican ideology for decades. Trump is rejecting all that, and much of the Republican base seems to be buying into his views.”
However, as the GTB article also notes, Trump’s threats to institute high tariffs, such as the 45% rate he’s proposed across the board on deals with China, would lead to “multinational corporations almost certainly see supply chains disrupted, prices skyrocket, and sales plummet.” This would, then make most acquiesce – unwilling to risk a massive economic downturn – but then Trump is unlike any candidate America has produced in at least half a century.
This absence of precedent also manifests itself in who Trump would reportedly like to run his Treasury Department: according to Fortune magazine, his nominee would be former Clinton financial bundler, Goldman executive and George Soros ally Steve Mnuchin. Whether or not the man himself would be interested in the job is almost irrelevant; Mnuchin would be a choice that would alienate Republicans in and out of Congress, and represent a shift from Trump’s anti-Wall Street campaign rhetoric.
Mnuchin was one of over half a dozen economic advisers Trump has brought aboard his campaign in an official capacity. His influence is already, apparently, outsized, as Trump has recently announced that he would institute a moratorium on new federal regulations of Wall Street.
However, it’s also more than likely that Trump – not a policy wonk by any stretch – would be bulldozed into supporting Republican efforts lead by Paul Ryan, the House Speaker Ryan likely sees Mike Pence, the Indiana governor who Trump tapped as his vice presidential selection, as a key partner in a potential Trump administration.
The other cornerstone of Trump economic policy is his promised across-the-board tax cuts. While everyone would see a reduction, the top income bracket stands to gain the most from the plan, which has drawn unfavourable reviews from credit ratings agency (CRA) Moody’s in its analysis of the economic policy of both candidates.
“Everyone receives a tax cut under his proposals, but the bulk of the cuts would go to those at the very top of the income distribution, and the job losses resulting from his other policies would likely hit lower- and middle-income households the hardest,” the agency reported. Moody’s went on to state that Trump’s policies would see slower annual growth and a weaker jobs market compared to Clinton’s, with markets such as the Standard & Poor’s (S&P) 500 performing better under a Clinton administration.
Perhaps the Moody’s report provides the most thorough glimpse into the future, but the 2016 US presidential election has many on edge across the financial services industry. US treasurers in a variety of settings are likely hedging their bets – and rightfully so.