Trump wins the US presidential election – what does it mean?

At the culmination of one of the most bitterly and divisive election campaigns ever seen in the United States, Donald J Trump has confounded sceptics, political pundits and pollsters by winning nomination to the White House, and arguably, the most powerful job in the world. For the US president is not just head of the largest economy, but also Commander-in-Chief of the most powerful military force.

In this post we will outline some of the likely and not so likely consequences of this election. What does it mean for the US, for the world and, more parochially, for the connected devices industry. We are getting many questions from clients. This post is being started by analysts in Asia and Europe and will be developed by our US-based analysts as they come to terms with the sea-change that is affecting the US.

Many people will be shocked by Trump’s victory. How can someone with no experience in political administration or military service, win the presidential nomination? Something that has never previously happened in US history. The answer, it would seem, is economics. Real median wages are no higher now than they were 18 years ago. This simple fact is likely the reason that motivated so many, mostly white, older, mostly non-college educated voters – many who’d never voted previously, to come out and vote for Trump. Trump spoke for them in a way that no other politician ever has. Trump was able to ignite a flame of hope that many felt had been extinguished by years of ‘cookie-cutter’ politicians who spoke of change, but any changes that were wrought were not felt in America’s heartland. A heartland that remained poor and with high levels of unemployment. Those that had been by-passed by the pace of technological and societal change were given the opportunity in this election to make themselves heard. An opportunity they seized on with both hands.

There are echoes here of the ‘Brexit’ vote in the UK. In the UK the people that voted for Brexit felt threatened by globalization. They blamed others for their feeling that a few were getting rich by standing on the backs of the many who were getting, not richer, but poorer. It looks like a similar popular uprising has carried Trump to victory in the US.

Trump’s victory also sealed a strong election for the Republican party overall – despite Trump being thoroughly disliked by his own party. The Republicans have maintained their existing control of the House of Representatives and the Senate, as well as now winning the White House. In theory, this means Trump will be able to push through his political agenda more easily than President Obama, who was effectively paralyzed by an entrenched Republican majority in both houses. However, as Trump has few fans among the Republicans, he may not have everything his own way; the US political system was established with many checks and balances to prevent a maverick from being able to wield too much power.

Short Term Impacts of Trump Victory

As stock markets react to the news, most were sharply lower as they had not priced-in a Trump win. But most recovered much of the lost ground in subsequent trading. The hand-over of power in the US is slow; Trump won’t be sworn into office until January 20th. But the uncertainty that accompanies any significant change will have a destabilizing effect on global markets. The dollar is weaker and money is flowing to traditional safe havens such as the Japanese Yen, that has strengthened by several percentage points, and gold.

In his acceptance speech, Trump’s tone was far more conciliatory than it had been throughout the election campaign. Many will seize on this as indicative that a Trump presidency will not be as extreme as many feared based on his campaign utterances. However, it’s too early to know whether the stance he takes in power will differ from his rhetoric. For the purposes of this post – we must take Trump at face value – always risky.

Assuming that Trump maintains his pre-election positions on international trade, foreign policy, immigration and economics, these are some of the short term impacts we can expect:

  • If Trump follows through on his promise to make the US more protectionist, international trade will likely suffer. The US may impose new or raise existing trade tariffs, leading to higher domestic prices for imported goods and services, and a consequent reduction in demand. If tariffs are imposed on China-built consumer electronics, such as iPhones, semiconductor and component companies could be exposed.  Not surprisingly, most technology stocks have been trading lower.  Further, it would not be remarkable if China retaliated with similar actions.  The trade war between such large powers would negatively affect the entire consumer electronics (including Apple) supply chain.  Finally, potentially most disruptive and cryptic in its understanding, Trump promises to instruct his Treasury Secretary to label China a currency manipulator. At minimum, this will further pressure US – China relations.
  • Republicans have historically been known as the more pro-business party. Trump has managed to confuse the market and expectations, partly because of being so light on details and partly for touting conflicting policies.  One would think large cap and tech players would welcome Trump’s proposed reduction of corporate taxes to 15% from 35%.  In addition, he has proposed a repatriation of corporate profits held offshore at a one-time rate of 10%.  This potentially could benefit companies such as Apple, Alphabet, Microsoft, Amazon, HP, Pfizer and many others.  Despite these two corporate handouts, he has scared off Silicon Valley and many corporations with his war on trade (and immigration).   For example, he has continually criticized Ford, Apple, and others for manufacturing outside of the US.  Trump the candidate blustered he would force these jobs back to the US—most see this as folly.  But, the rhetoric has been enough to scare off most technology leaders in Silicon Valley.
  • Reactions from international partners – notably China – could cause negative ripple effects that tip several countries into recession – including both China and the US. Should this be the case, we can expect to see consumer sentiment turn increasingly negative. Replacement rates for goods including smartphones will lengthen, depressing the overall market size.
  • The US dollar will weaken against a range of currencies. This weakening will likely be relatively modest – nothing like the 20% decline the British Pound experienced post Brexit. And as many international trade deals are priced in US dollars the inflationary effects will be muted.
  • The Japanese Yen will be stronger as it is one of the traditional safe haven currencies. This will likely make some exports from Japan more expensive. Japan is a major exporter of many raw materials for silicon wafer fabrication. However again, the trading is likely conducted in US dollars, so it will be the Japanese corporate profit margins that suffer most.
  • The Mexican Peso slumped on the news of Trump’s win. This will push up prices and, likely, interest rates in the country. Mexico’s economy is already fragile and the impact of Trump’s expected stance towards the US’s southern neighbor will likely push the Mexican economy further toward recession. Other Latin American states may also suffer.
  • On technology, Trump’s campaigning has left little to understand how he might treat digital policy. He apparently very rarely uses email. However, he is a big Twitter user, either firing off tweets by himself from his Samsung Galaxy smartphone – or by shouting ‘tweets’ to aides who send them from other devices including PCs and iPhones.
  • He has intervened verbally when the FBI were trying to access the iPhone belonging to a shooter. Trump’s view then was that Apple should be boycotted until they help unlock the phone. Apple resisted. Trump’s vision is to review all of the US’ cyber defenses, develop the offensive cyber capabilities to deter attacks, and ‘respond appropriately’.  The final comment has helped to fuel uncertainty of what truly is Trump’s cyber security policy.  It is yet to be seen if this is a true core belief or rhetoric which appeals to the Republican base at the cost of individuals’ rights to privacy.
  • If countries around the world fear a more aggressive cyber-armed US, we can expect to see reactions that will include more isolationism such as we see in China. This will potentially hurt global internet giants like Google and Facebook, but could promote local internet players. We already expect to see additional limits put in place to curb the development of voice-controlled AI such as Siri in countries like China. These limits could become more stringent and more widespread.
  • Other short-term impacts include:
    • Repeal Obamacare and implement health savings accounts.  Insurance companies have been pressured since the election and bio & pharma have prospered under expectations of less pricing regulation.
    • Promise of $1 trillion spend on infrastructure which could mend some fences with Democrats as this is one area they will be onboard.  It could also be the first area which could cause rancor among Republicans.  The investment of more than $50b annually is one of the reasons for the US market’s recovery of what was lost election evening.  Spending will not begin for some time but the expectation has already caused a short-term impact.

Longer Term Impacts

Assuming that Trump maintains his pre-election positions and doesn’t significantly change them after the first impacts become visible, we can expect one or more of the following longer term impacts:

  • Trump is likely to develop his protectionist inclination to become even more isolationist. This will likely have implications to NATO that has been largely a force for peace. The US is, by far, the most powerful military force in NATO. Trump has stated that the US would not necessarily intervene in conflicts where NATO’s protection could hitherto be assumed. This softening of NATO’s power is likely to embolden countervailing forces such as those of Putin’s Russia. Putin might therefore seek to reassert Russia’s power in, for example, countries in the Baltic region such as Latvia, Estonia and Lithuania. The results of such a move can be catastrophic. In addition, Trump could unravel recent Obama policies such as the Iran Nuclear Deal and new relations with Cuba.  It remains to be seen what this means in practice as Trump has sounded like both an isolationist and a military hawk depending upon his audience.
  • Trade deals are likely to be eliminated. Trump has stated that NAFTA (North America Free Trade Agreement) will either be renegotiated with Mexico and Canada or the US’ neighbors will be notified of the US’ intent to withdraw.   There are mixed opinions of what abandoning NAFTA means on the US economy. There is, however, more bipartisan agreement that it would impact the environment and the Mexican economy.  The US has only 3 formal trade partners within Asia.  However, candidate Trump promises to withdraw from the Trans-Pacific Partnership, which has not yet been ratified.  The partnership countries include a diverse mix including the US, Mexico, Canada, Peru, Chile, Japan, Vietnam, Singapore, Brunei, Malaysia, Australia, and New Zealand.  At risk is trade growth due to reduced tariffs the agreement proposes, as well as agreements to strengthen intellectual property rights.
  • Clean/renewable energy spending may suffer. Trump has showed little interest or concern with climate control nor government subsidies on alternative energy.  Trump’s energy plan includes onshore/offshore leasing on federal lands for drilling, eliminating moratorium on coal leasing, opening shale energy deposits, and encouraging use of natural gas. This change in policy could jeopardize subsidies given to zero emission vehicles (such as Tesla) and others in the solar panel and wind energy industries.
  • Trump’s policies are so far xenophobic and anti-immigration. He has made repatriation of Mexican immigrants a central theme of his campaign – together with the building of a Mexican funded wall to keep people out. He has pledged to stop Muslims from entering the country without significant vetting. Such political rhetoric, however inflated it may be, suggests Trump is willing to close off immigration to a greater or lesser extent. Silicon Valley relies on being able to attract the brightest and best engineers from around the world. Some are home grown, many are not. Leading technology companies may find it incrementally harder to attract talented staff.
  • Trump has displayed a lack of understanding of geopolitics during the campaign. He asserted, though later retracted, that countries including Japan and South Korea, would be better off if they became nuclear powers. Given that North Korea is a belligerent, unpredictable state that is amassing a significant nuclear capability, a complete destabilization of east Asia is not beyond the realms of possibility. The consequences can also be catastrophic. Ironically, Russia and China’s economies were quite stable immediately after election results were known.  It is possible that Trump’s anti-NATO comments and limited experience in foreign policy eludes less fear to global powers than a Clinton presidency due to her years of foreign affairs experience as Secretary of State and a US Senator from New York.

Any Positive Signs?

Trump is an opportunist. It is questionable how fundamentally he believes many of the core values of Republicanism; it wasn’t so long ago that he supported democrats including Hillary Clinton. It is conceivable therefore that he will seek to mollify critics and create a more unified government with members of the democratic party holding senior positions.

He will risk alienating the very electorate that put him in office by not enacting policy in the way many electors imagine he will. For the US and wider world, this will perhaps be the best outcome.