The personalities and policy issues emerging in the lead up to the forthcoming US elections in November 2016 have generated much controversy. Media attention has focused on eye-catching social policies, particularly those of Donald Trump. In this series, however, we will look at the potential economic impacts of the policies of the major parties’ candidates. The objective is not to support a particular candidate or even particular policies, it is simply to sketch out the possible consequences of each candidate’s proposals. It is also worth remembering that even if elected the candidates may be unable to implement their policies if they do not have the support of Congress.
In this article, we will consider the policies of Hillary Clinton.
Global Trade
Clinton has previously been seen as pro free trade (as indicated, for example, by her support of the Trans-Pacific Partnership – TPP). However, this position is appearing to weaken under public pressure. Clinton has recently said that she does not support the TPP in its current form. She has also stated that she would implement measures to discourage the offshoring of jobs, including an exit tax on companies and requiring repayment of past government support (including tax breaks) if jobs are offshored, as well as a crackdown on tax inversion deals.
These policies indicate that Clinton would implement a mild form of protectionism. Although the TPP is not yet in place, and so global trade would not be negatively affected, trade would grow more slowly if it is not signed or if it takes longer to sign the treaty due to further negotiation. Tax measures to discourage companies from moving offshore would take longer to have an impact. They would likely reduce savings for companies (which either could not offshore jobs to cheaper locations or would have to pay a penalty for doing so) and so reduce company profits. Given the likelihood of retaliatory measures from other countries, the profits not just of US-based companies but of all companies would be affected.
Infrastructure
According to Clinton, $25bn of government spending could unlock an additional $250bn of private investment in infrastructure. She proposes to achieve this by creating an infrastructure bank to provide loans and seed funding of that amount to infrastructure projects.
Regardless of whether Clinton’s assessment of the amount of private sector funding to be unlocked is correct, the injection of billions of dollars of infrastructure spending over a four year presidency would be beneficial to the US economy, directly creating jobs and therefore increasing consumer spending. In addition, companies would benefit as good infrastructure improves their productivity and efficiency, enhancing their margins. Construction companies would stand to benefit particularly as they may be contracted to carry out the work.
Taxation
Clinton has not made specific proposals to cut corporate taxes. She has proposed changes to personal taxation. She has proposed increasing taxes on the rich. Although she has not given specific figures, it appears this involves ensuring that investment returns are taxed at similar rates to earned income. She has also proposed additional tax credits to poor families with children.
Additional tax credits to poor families are likely to increase consumer spending by at least the amount of the tax credit (as poor families in general spend any increase in income) and may result in further spending capability as tax credits will incentivise increased earnings. If Clinton does act to raise taxes on investment returns, this may depress the stock market by making such investments less attractive.
Conclusion
The effects of Clinton’s economic policy proposals are mixed. If implemented, they are likely to stimulate US domestic demand. However, the global effect is likely to be less beneficial, with indications that some protectionism may harm company profits.
In part 2 of this series, we will examine the potential economic impact of Donald Trump’s policies.
Risk warnings
This document has been prepared based on our understanding of current UK law and HM Revenue and Customs practice, both of which may be the subject of change in the future. The opinions expressed herein are those of Cantab Asset Management Ltd and should not be construed as investment advice. Cantab Asset Management Ltd is authorised and regulated by the Financial Conduct Authority. As with all equity-based and bond-based investments, the value and the income therefrom can fall as well as rise and you may not get back all the money that you invested. The value of overseas securities will be influenced by the exchange rate used to convert these to sterling. Investments in stocks and shares should therefore be viewed as a medium to long-term investment. Past performance is not a guide to the future. It is important to note that in selecting ESG investments, a screening out process has taken place which eliminates many investments potentially providing good financial returns. By reducing the universe of possible investments, the investment performance of ESG portfolios might be less than that potentially produced by selecting from the larger unscreened universe.
