The Trump effect: Why it pays to remain sanguine about the rise of the Republican renegade
With his infamous “Great Wall” plans and talk of repealing “horrible” free trade deals – neither of which would be good for global business – Donald Trump is in step with the rising trend towards protectionism and populism seen in Europe.
If the presumptive Republican nominee wins the Oval Office in November, City investors may well be concerned about the implications of a Trump presidency, not only for US stocks but for UK and global indices as well. British companies that generate substantial earnings in the US will be of particular concern.
But there are reasons to remain sanguine – even if some of the latest polls suggest that the gap between The Donald and his likely opponent, Hillary Clinton, is narrowing, or indeed they are neck and neck.
Read more: Why it’s time to start taking Donald Trump seriously
First and foremost, Clinton is still the bookmakers’ favourite to win in a face-off with Trump, which means he still has ground to make up with the electorate if he is to become the country’s 45th president. He may have borrowed the slogan “Make America Great Again!” from Ronald Reagan, but there is little evidence to suggest he could replicate Reagan’s landslide victories.
As would-be leader of the free world, Trump will also have to moderate his rhetoric if he is to have any hope of swinging overall opinion in his favour. A party outsider needs to shout the wildest to rally the base; a head-to-head presidential candidate needs to speak to the political centre.
Even if Trump is able to defy the odds and win the election without abandoning his more extreme policies, it seems improbable he would be able to implement them. It could reasonably be argued that the American president is one of the most visible yet least powerful domestic leaders in the world. By separating the executive, legislative and judicial powers, the Founding Fathers designed a system of checks and balances to prevent the president of the republic from becoming an elected monarch.
All federal legislation must pass through Congress. The president cannot compel action or control the outcome. The president can veto legislation, but Congress can override the veto. And even then, the Supreme Court might strike it down. Trump is not the first – and certainly won’t be the last – presidential candidate to make grand claims on the campaign trail without following through once in office. For example, although Obamacare got through Congress, the final legislation was far from the bill Obama wanted. In the process, he had to bargain away most of the rest of his legislative agenda just to get this reform through.
Read more: Donald Trump will lose and Trumpism will die with him
Looking beyond the election result, the ingrained advantages of the US will outlast any single presidency. The US is in a relatively stronger position than many of its developed world peers, particularly Japan and the Eurozone. It is one of the most capitalist nations in terms of national psyche and regulation; the demographic outlook is superior thanks to the country’s proven ability to attract and assimilate immigrants; it has been bestowed with a wealth of natural resources; and the banking system was recapitalised quickly after the global financial crisis.
Finally, it should be recognised that the stock market is not necessarily the economy. The relationship between domestic growth and national stock market returns is weak at best. History tells us that equities tend only to fall and stay down for a long time if a country’s capital stock is destroyed by war or, worse, confiscated in revolution. Geographically and militarily, the US is secure.
Should share prices decline on any election headlines, it could present an excellent opportunity to pick up proven winners at a discount. Steadily accumulating a diversified collection of well-run businesses will continue to be a prudent approach to growing capital over time. For long-term savers, the tortoise trumps the hare.