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) and a property mogul turned reality star who has grown his brand in recent years by lending his name to conspiracy theories like the origins of President Barack Obama, it’s 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 what to expect, considering her husband’s tenure in The White House, and with many assuming that her administration would represent the proverbial “third term” for Barack Obama. However, with the success of Vermont Senator, and self-described democratic socialist, Bernie Sanders in the Democratic primaries, Clinton allies helped draft a party platform that has included more left-leaning language, perhaps forcing a President Hillary Clinton to adopt policy positions that many experts would have previously said were too ideological for Clinton to enact. This has already started, with Clinton dropping her support of the oft-discussed and much maligned Trans-Pacific Partnership (TPP).
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 last year, despite it being eight years after the financial crisis of 2008, risks that could 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. 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,” Bloomberg reported.
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 like Tim Geithner, Hank Paulson, and Larry Summers ending up in the job seems to be at an end, at least temporarily. POLITICO has speculated that Clinton would instead turn toward Silicon Valley, with insiders claiming that former Treasury Department staffer turned Facebook COO Sheryl Sandberg is at the top of the wish list. Campaign 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 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 put forth by liberals looking to end the influence of private banks to contribute 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. These presidents, in turn, serve on the key committee that sets interest rates. Clinton called for getting bankers out of that process.”
It would appear that the analysis that financial policy under Hillary Clinton would attempt to complete work begun by Barack Obama is largely well founded, but despite that, the influence of Wall Street on domestic fiscal policy will be difficult to eliminate, particularly with Chuck Schumer, Democratic Senator of New York, the 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 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 Sanders than to Jeb Bush or Scott Walker.
The bulk of Trump’s statements regarding economic policy is rooted in his protectionist philosophy: the idea that the U.S. is coming out on the losing end of trade deals like 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 said the following, “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 Global Treasury Briefing also notes, Trump’s threats to institute high tariffs, such as the 45% 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, then, would 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 also manifests itself in who Trump would reportedly like to run his Treasury Department: according to Fortune, his nominee would be former Clinton financial bundler, Goldman executive and George Soros ally Steve Mnuchin. Whether or not Mnuchin 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 House Speaker Paul Ryan. Ryan likely sees Mike Pence, the Indiana Governor that 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 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 Moody’s in their 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 ratings agency reported. The report went on to state that Trump’s policies would see slower annual growth and a weaker jobs market compared to Clinton’s, with markets like the S&P 500 performing better under a Clinton administration.
Perhaps the Moody’s report provides the most thorough glimpse into the future, but Election 2016 has many on edge across the financial services industry, and treasurers in a variety of settings are likely hedging their bets, and rightfully so.
By Keith Sonia.