The world is keenly watching the United States (US) presidential elections with former Secretary of State Hillary Clinton (Democratic Party) and business tycoon Donald Trump (Republican Party) having emerged as frontrunners. CNN Poll of Polls, released in August 2016, indicated 49% average support for Hilary Clinton and 39% for Donald Trump. Given that the margin of difference is not too large, anything could happen before November 8th, 2016 when the ultimate vote is cast to decide the next leader of the US.
The Emerging Market Innovation team at Frost & Sullivan examines where these 2 candidates stand with respect to some key issues and analyses the implications of their stance on the US and the rest of the world.
Income Taxes- Will the Rich become Richer?
For the year 2016, individuals, married individuals filing jointly, and heads of household are subject to lower and upper income tax rates of 10% and 39.6%, with 7 taxable income brackets. Donald Trump’s original tax plan initially proposed reducing the number of tax brackets to 4, with lower and upper rates of 0% and 25%. Trump’s recently revised policy however proposes 3 brackets, with lower and upper rates of 12% and 33%. Hilary Clinton on the other hand proposes the creation of an additional tax bracket for those earning $5 million and above, with a tax rate of 43.6% imposed on these high income filers. With respect to corporate income taxes, Donald Trump proposes slashing the rate from 35% to 15%, while Hilary Clinton has not made any proposals with respect to the same.
In effect, we see that Donald Trump’s tax plan envisages lesser income taxes for the rich and for businesses, whereas Hilary Clinton aims to generate more federal revenues by imposing higher taxes on the rich.
Trade- Trans-Pacific Partnership (TPP) Collapse and Trade Wars?
Both Trump and Clinton have expressed their opposition to the TPP deal- a free trade deal (which also covers other aspects such as labor, intellectual property and so on) with 11 other countries (Japan, Malaysia, Vietnam, Singapore, Brunei, Australia, New Zealand, Canada, Mexico, Chile, and Peru) which is yet to come into effect and is pending US ratification. Given that Hilary Clinton had however praised the TPP during her tenure as Secretary of State, there is speculation that she could shift her stance following the elections. If however she does not change her stance and the TPP is not ratified before the end of Barrack Obama’s term in January 2017, ratification is most unlikely and the trade deal stands to be cancelled. This is because for the deal to come into effect, at least 6 countries which account for 85% of the combined gross domestic product (GDP) have to ratify the deal- necessitating ratification from Japan and the US. Given the years invested in TPP negotiations by member countries, TPP cancellation because of the lack of US’s ratification would dent the US’s credibility and hurt its positioning when pursuing other international agreements in future. Cancellation of the TPP and the US’s resultant inability to expand free trade relations with Asia Pacific would limit the US from regaining its dominant position in global trade which it has lost out to China in the recent years. With respect to the 11 other member countries which will be left hanging in the event of TPP cancellation, it is possible that a separate trade deal could be pursued.
On the grounds that the US has lost several manufacturing jobs to Mexico as a result of the North American Free Trade Agreement (NAFTA) between the US, Canada, and Mexico, Donald Trump has vowed to renegotiate the deal or withdraw from the same. Withdrawal from the free trade deal would obviously mean higher tariffs; and Trump has also proposed the idea of a 35% import tariff on some Mexican imports. American companies (with supply chains in Mexico) and consumers would feel the heat of higher import tariffs, and if tariffs as high as 35% are imposed, the US also faces the risk of retaliatory tariffs from Mexico. There is also no certainty that amidst higher import tariffs, American firms would relocate to the US, given that they might just choose to relocate to another low wage destination. Trump has also proposed the idea of a 45% tariff against Chinese imports in retaliation to China’s currency devaluation practices. Likewise, Clinton has also suggested targeted tariffs against countries that break trade rules, although no specific rates have been outlined.
Immigration- Future of Undocumented Workers and H1 B Visas?
Donald Trump had initially voiced his intention to deport all of the roughly 11 million undocumented immigrants residing in America. Apart from the high costs involved in the act of just deporting these workers, deportation would also lead to a contraction in the US’s workforce, in turn dampening output, spending, and GDP growth. Trump now however appears to only be stressing on the deportation of undocumented criminals, with his present focus appearing to be similar to that of Hilary Clinton. Clinton however calls for creating a pathway for undocumented individuals to gain citizenship, whereas Trump is opposed to the same unless the individuals leave the country and return the right way. Trump has constantly reiterated for building of a border wall between US and Mexico, paid for by Mexico, given the scores of undocumented immigrant workers who repatriate money to Mexico. The Mexican government however has not agreed to build the wall. Trump has expressed that if the government does not fund the wall construction, dollar inflows into Mexico could be stopped by means of regulations requiring immigrants to prove their legal status before making money transfers. The regulation, if imposed, would hurt the Mexican economy given the high reliance on these transfers (almost $25 billion sent in 2015), although it has also been voiced that the regulation might just force undocumented workers to resort to underhand methods to send money back home. Trump has also expressed that the US could charge higher visa fees for Mexicans in order to fund wall construction.
With regards to H1 B visas granted to fill the skills gaps in the US labor market, Donald Trump initially expressed opposition against the granting of these visas but thereafter reversed his stance explaining that it was necessary to recruit highly skilled persons from abroad. A re-reversal of his stance however would create trouble for India’s outsourcing industry which has benefitted from being able to send scores of information technology engineers as part of this visa program. Hilary Clinton has been silent on the issue of H1 B visas during the ongoing Presidential campaign although she had previously expressed her views on increasing the cap on H1 visas.
While a lot of bold promises have been during the Presidential race, the world will have to wait and watch to assess actual delivery of the elected candidate as against campaign rhetoric. The new leader of the US will play a pivotal role in shaping the world economy and international affairs at a time when the world is reeling under the implications of Brexit, the rising threat of terrorism, and other pressing challenges. With the latest polls indicating that Hilary Clinton is the lead, it remains to be seen whether election results will confirm with poll results, or whether US voters will make a departure from what is widely being expected, just like Britain did, which could again send stock markets into a spiral.
[1] Incorporates the results of 6 major polls.
