Trump’s effects on the weakening Euro!

Trump’s effects on the weakening Euro!

Trump becomes the 45th US President

November 8th US election

After the long awaited US presidential election, America have appointed its 45th US President. Donald Trump succeeded Hillary Clinton in the early hours of last Wednesday morning to what was described as a shock victory by many. Trump’s victory, despite his businessman background, has seen more uncertainty around America’s future.

Although the U.S. Federal Reserve is in charge of monetary policy decisions, the Republican President can affect political and economic stability. Just like Brexit, it will take time to see the full effects of what this means for the economy. Surprisingly however, the Dollar has strengthened following Trumps victory, something many were not expecting.

The effects of Trumps victory will become much more evident when he is sworn in as President in January 2017.  Currently the President-elect is appointing his team and has already created more controversy surrounding particular selections.

Reince Priebus has been appointed as White House Chief of Staff While Steve Bannon will assume the role of Senior Councillor to the president.  This particular appointment has caused debate as Bannon has been associated with a website known for its racist and anti-Semitic content. The remaining roles are expected to be filled in the coming weeks, and with typically Trump style you can be assured there will be a few more surprises!

 

Effects of Trump Victory on Europe

President of the USA Donald Trump

Change to foreign policies is currently a hot topic with Trump keen to ensure US companies remain in the US, and with America looking set to segregate themselves form their trading partners including Europe, hampering the Eurozone import and export market.  Trumps main objectives are to:

Strengthen the Dollar by changing the US tax system from its current seven split bracket to a three split bracket which would eliminate over 75 million of householders from paying any tax.

The aim of this strategy is to increase domestic investment, enhancing the Dollar. An increase in the Dollar would be welcomed by American customers and organisation importing into the country as it allows cheaper purchasing of foreign products and services. Nevertheless, huge and sudden hikes in the Dollar could damage exporters dealing with foreign currencies that haven’t protected themselves.

Lowering of the corporation tax rate (39% to 15%) – therefore attracting foreign and US organisations to set up their headquarters there.

This move is to help attract US organisations back to the US while also preventing start-up’s setting up abroad. Europe will be hugely impacted if Trump were to follow through on this. While this would greatly benefit America, it will have huge knock on implications for Europe and beyond, including tax hikes to combat absent proceeds. It will become very difficult to compete with the US in attracting corporations to specific locations, in particular for countries with high corporation tax bands.

In Trump’s Presidency he plans to undertake tough trade negotiations and the renegotiation of free trade to better protect and benefit US workers.

Donald Trump claims America has negotiated “horrible” trade deals in the past. He states his success as a real estate dealmaker would mean he could negotiate better trade terms. However, Trumps position on free trade worries many. The Transatlantic Trade and Investment Partnership (TTIP) and the Trans-Pacific Partnerships (TPP) are surely to be effected by trumps presidency. Tougher US trade borders will decrease exporting possibilities into the US. However the UK might benefit as Trumps trade adviser stated ‘Britain would be offered a free trade deal before the rest of the European Union’.

The United States is Europe’s largest trade partner with approximately €620 B a year moving between the two countries. Competition between organisations will increase due to increased government lobbing support such as between the US’s Boeing and European rival’s Airbus in the aircraft industry.

Trump’s policy on the free trade agreement NAFTA has also causes great concern for traders especially Mexico where he wants to implement heavy tariffs of 35%. Europe has begun a campaign to keep these transatlantic trade agenda.

Trump however is unpredictable, changing his mind often on a whim so it remains to be seen how much influence his team of advisers will have and what is to come with the 45th US president.

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