President Trump - The first 100 days

While President Trump's election success was unexpected for financial markets, they bounced back quickly.  The President’s initial conciliatory tone and policy statements were viewed by the markets as growth friendly, and the last few months have seen positive conditions. Satish Ranchhod, Senior Economist at Westpac, discusses Presidents Trump's first 100 days and how the administration's policies could affect New Zealand.

By Satish Ranchhod - Senior Economist at Westpac New Zealand

The 29th of April marked Donald Trump’s 100th day as United States president. The president’s plan for his first 100 days was a key feature of his election campaign.

President Trump’s focus has been on America first - a protectionist shift in policy to support US industry and employment. For New Zealand, the big development to date has been the US withdrawal from the Trans Pacific Partnership (TPP). President Trump is also looking at other areas where the current trade environment could be seen to be disadvantaging US producers.

Another major Trump policy prong is increasing US spending on infrastructure, to support US business and employment. He is expected to continue to move through these avenues in the coming years.

However, the question will be how quickly he can achieve these goals.

We have already seen proposed changes to the Affordable Care Act (‘Obamacare’) fail to get sufficient support from the President’s own party. This is important, because that was meant to be the first part of a bigger suite of policy changes.  Given that even with a Republican majority in both houses the President is finding it challenging to push through his policy agenda, it might be some time before we see significant progress.

President Trump also made some pretty big promises on the election trail, but the big concern is how affordable will those policies be? Some of the proposed plans would put a lot of pressure on the US’s fiscal position.

In New Zealand terms, one of the biggest issues is how the Federal Reserve will react to President Trump’s policies. US economic activity is currently pretty positive and that has prompted the Federal Reserve to hike rates in recent months. If we see additional fiscal stimulus under the Trump administration, that could reinforce upward pressure on US interest rates. That’s important for New Zealand because when rates rise in the US that adds to upward pressure on interest rates here. That is a key reason why New Zealand mortgage rates have been rising. New Zealand is also exposed through global trade. While we are too small to be directly in President Trump’s cross hairs, we could get caught up in measures targeting other regions.

The most immediate concern is President Trump’s policies regarding China. During the campaign he was very outspoken regarding trading relationships between the US and China, stating that he wants to see moves to favour US producers.  That included proposing a 45 per cent tariff on US imports from China.

If that were to happen it would have a very material impact on manufacturing in the US and China. It would also mean some very large price increases in the US, which would need to be paid for by US consumers, President Trump’s key constituency. In practice, he is not likely to get political support for those sorts of changes, but it is likely that he will look at some changes in trade policy in the coming years.

Uncertainty about how effective the Trump administration will be in pursuing its policy agenda could also affect financial markets, and that could be transmitted through to New Zealand. China is a bigger trading partner for New Zealand than the US, and it is very important for our trading partners in Asia and Australia. That means that change in US trade policy in relation to China is likely to get transmitted to us indirectly through activity in other regions.

Overall however, the United States is still the world’s largest consumer market and right now it’s looking healthy. If we see stimulatory policies from the Trump  administration, then that is likely to reinforce that outlook. For New Zealand business, that improving global backdrop is helping support conditions here. That is being reinforced by our trade base which is increasingly linked to fast growing economies in Asia.

Businesses in New Zealand do need to be mindful that global interest rates could push higher over the coming years and should be conscious that the global trade environment could change. In general though, there is a pretty good outlook for the New Zealand economy and positive trends in the export sector.  Domestic demand is healthy, with strong construction activity and population growth.  Combined with low interest rates, we are looking at a positive domestic story for the next few years.

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