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The US presidential election race has turned in Hillary Clinton’s favor after she and her Republican rival Donald Trump won big victories in the ‘Super Tuesday’ primaries, says Chief Economist Léon Cornelissen.
That means the former First Lady is set to beat the controversial real estate tycoon and become the first US female president, which would be a better outcome for investors than a Trump presidency, Cornelissen says.
Eleven US states held primary elections on 1 March to choose their candidates for the Democratic and Republican Party nominations – dubbed Super Tuesday because of its size and influence on the overall contest. Another two states held caucuses, whose results are indicative, but not binding. Clinton faces the Socialist Senator Bernie Sanders as her main rival, while Trump is primarily up against Senators Ted Cruz and Marco Rubio.
“After Super Tuesday, there’s good news and bad news,” says Cornelissen. “The good news is that Clinton won big in the south, thanks to the black vote, and she even took Massachusetts, which is very left wing and Bernie Sanders’ territory, so there’s a huge likelihood now that she will be the nominee for the Democrats. She is a pragmatic old hand, so that is reassuring for markets.”
“The bad news is that it is now very likely that Trump will be the nominee for the Republicans. The problem with Trump is that his policy proposals are highly xenophobic and protectionist, such as building a wall between the US and Mexico, plans to deport huge numbers of illegal immigrants, and place huge tariffs on Chinese imports. From an economic point of view, that’s not good.”
‘The growing wealth inequality in the US is posing problems for growth’
“Trump is also proposing huge tax cuts, and the US economy is in no need of this; tax cuts for the rich are deeply ingrained in the Republican agenda, but the growing wealth inequality in the US is posing problems for growth as well as social instability. What the US economy really needs is investments, especially in its crumbling infrastructure.”
“And then of course Trump is a climate change denier, which does not bode well given developments to combat it. There is a racist, violent undertone in Trump’s campaign, which doesn’t bode well for a Trump presidency, which would have to deal with US-Chinese relations for example. All in all, markets won’t react favorably to a Trump presidency.”
Cornelissen says the potential downside for Clinton is that she belongs to the establishment, whereas Trump has gained popularity as a populist candidate attacking the Washington elite. As the wife of President Bill Clinton, she has already spent eight years in the White House in the 1990s; served a further eight years as a senator for New York; and spent four years as the Secretary of State responsible for foreign relations. Trump is best known as a real estate tycoon and reality TV star but has never held political office.
“The growing power of female, black and Hispanic voters works in Clinton’s favor, and makes it unlikely that someone like Trump would ever become president,” says Cornelissen. “My bet is also that in a Trump versus Clinton battle, she would be able to win easily, possibly in a landslide. So in that sense, investors don’t need to worry too much.”
“But we shouldn’t underestimate Trump because he clearly senses the sore mood of the US electorate, which explains his strong showing in the Republican campaign. Clinton is an establishment candidate. But I can’t imagine that the majority of US voters would go for the more populist and vague Trump.”
So what if either one became president, and the most powerful person in the world? “A President Clinton would be more of the same,” says Cornelissen. “She is feeling the pressure of the left wing of the Democratic party, but if Sanders drops out she will move back to the center. She has never been that much into economics, so I don’t expect a radical agenda. She would do some good by taking initiatives to reduce inequalities in the US and she is under pressure to take on Wall Street, but with Sanders dropping out, this pressure will diminish.”
“A President Trump’s xenophobic and protectionist agenda would not bode well for the world economy or for the US, which is already showing resilience as demonstrated by the recent better-than-expected GDP and ISM manufacturing figures, despite the global headwinds. It would be bad for the world economy if the US became inward-looking and protectionist.”
“And what we need of course is for the US to invest in good relations with China; the future president has to handle the rise of China, with all its geopolitical implications and consequences, and I have grave doubts that Trump would be able to do that in a positive, forward-looking way.”