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How will a second term for President Trump affect your business?
The world seemed a different place on Wednesday morning. Four years after he was dragged out of the White House, Donald Trump rose from the canvas to complete the most unlikely of political comebacks, sweeping to victory in a surprisingly cut and dry election.
The US dollar climbed by almost 2 cents against the pound in the hours following the result, while the euro has also been volatile. As the world’s largest economy prepares to meet a much less conventional leader, we look at how your business could be affected by president-elect Donald Trump.
Taxes, trade and treaties
European readers may feel removed from the danger of a second Trump term but the reality is more complicated. Every government policy has an impact of a nation’s currency and its overall economic picture. Donald Trump could mean less wiggle room in your cash reserves and a weaker pound to boot.
When he takes office in January, Trump is expected to resurrect his trademark “America first” playbook. That will likely mean blanket taxes on trade, something Trump repeatedly championed on at his rallies. He is predicted to be especially harsh on Chinese imports, which could have the knock-on effect of bringing more goods from China into the market and fewer from the USA.
Tariffs on goods are likely to cause higher inflation in the British and European economies. That should set alarm bells ringing for businesses exposed to higher input costs, such as manufacturers and importers.
Brexit looms large
Trump’s victory is a particular sore point for the UK given its independence from the eurozone. Possible restrictions mean that our second-largest trading partnership faces an uncertain future, while Brexit has left few frictionless alliances with our closest neighbours.
The geopolitical implications of this new world also cannot be ignored. Trump has promised action to end the ongoing wars in the Middle East and Ukraine but it’s hard to see his solutions amounting to a masterclass in diplomacy. Ukraine now looks acutely vulnerable and, should it fall, currency markets will no doubt ask if the Baltic states are next and whether NATO’s goose has been cooked. European currencies would not react well should that come to pass.
The one shaft of light could come from higher central bank interest rates. As we’ve seen, higher interest rates often serve to boost a currency, particularly if one is higher than the other. The National Institute for Economic and Social Research (NIESR) estimated that Trump’s policies could raise UK inflation by 3-4 points higher while interest rates would be 2-3 points higher in the next few years.
The value of preparation
Unfortunately, we can’t say for sure exactly how the pound will react to all this. There are simply too many unknowns to make that guess.
What we can see with at least a degree of confidence is that sterling (and many other currencies for that matter) could be in for serious volatility. Given the new president’s unpredictable nature, British businesses should dust themselves down and protect their profit margins and cashflow from the coming storm.
You can do that with Smart Currency Business today. Call 020 7898 0500 to discuss a forward contract; alternatively, if you’re new, please register with Smart Currency Business today.
