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The Trump victory: the impacts on country sustainability

The Trump victory: the impacts on country sustainability

16-11-2016 | Article

The surprising outcome of the U.S. presidential election seems to be the latest step in a longstanding global trend of increasing political uncertainty and growing populism. Donald Trump’s election as the 45th American President has left a deeply divided country and displayed a deep and widespread anti-establishment sentiment among American voters. It underscores the discontent of those increasingly beset by rising income inequality, economic globalization, financial liberalization, technological innovation and societal shifts, including large-scale migration. These are in no way limited to the U.S. but are also visible in several European countries, most notably the UK, where it was identified as a major driving force behind Brexit. It could give political tailwind to populists elsewhere and is likely to influence upcoming elections in the Netherlands, France and Germany where right-wing parties are gaining traction.

  • Max Schieler
    Max
    Schieler
    Senior Country Risk Specialist

Trump’s election victory: arousing widespread fears

As it will take some time before the new administration’s real policy agenda becomes clear, it is still too early to gauge the full implications of Trump’s victory and expectations about his future policy course remain highly speculative. It remains to be seen to what extent Trump will and can stick to his radical campaign rhetoric, given that he will be faced with the constraining powers of Congress, the federal juggernaut, and the courts. Even though the secured Republican majorities in the House of Representatives and the Senate could leave the new president with somewhat weaker checks and balances, he still needs the support of a deeply divided Republican party. However, on matters of foreign policy and trade, as commander-in-chief, the president has more freedom for unilateral action. It also remains to be seen how Trump the president will differ from Trump the candidate. The relatively conciliatory tone in his victory speech would seem to point to a more tempered and tame perspective, although one should remain cautious about developing premature hopes.

Policy direction will change and impact country sustainability

Though it is currently difficult to develop concrete predictions, the economic and political landscape is palpably different and it appears clear that policies will change. By virtue of the fact that nearly half of the Americans who voted, voted for change, Trump will not simply return to “business as usual”, but will reverse directions on many policies. His policy platform - while still lacking details – contains controversial pledges that could have costly economic impacts, fuel political volatility and adversely affect America’s sustainability profile with global repercussions. Moreover, his economic plans are sometimes contradictory where, on the one hand, he promises a wave of tax cuts while, on the other, advocates large spending increases on infrastructure and defense.

Mr. Trump’s skepticism of international free trade could initiate a new era of protectionism and negatively impact some key trading partners, specifically China and Mexico. Adverse social and environmental effects could result from Trump’s pledges to restrict immigration, deport illegal immigrants, repeal Obamacare, ease environmental regulations and cancel the Paris climate deal, all of which would sooner or later affect the U.S.’ country sustainability profile (currently ranked 15th in the RobecoSAM ESG country ranking with a score of 6.97 on a scale from 1-10). This political brief outlines some of Trump’s key policy pledges and focuses on their potential impact on various ESG criteria as summarized in the table below. Though not the subject of this analysis, the effects on financial markets and the global economy should not be ignored.

Environmental

  • Trump’s ultimate climate and energy policies are still unclear. During the election campaign he vowed to make the U.S. energy independent, focusing on fossil fuels and annulling the Paris climate accord.
  • Trump has also pledged to dismantle domestic environmental regulations, curtail Obama’s Clean Power Plan to curb emissions from coal-fired power plants, and shrink the role of the Environmental Protection Agency.
  • If implemented on a large scale, such massive changes could gravely impact the environment, accelerate climate change and downgrade the country’s performance in the environmental area.
  • The U.S. would also forego its role as a global leader on clean energy and climate change. It is the second largest GHG emitter worldwide behind China and its ratification of the Paris climate deal in September - together with China - was a major and important step forward.
  • However, given recent trends toward renewable energies and their steadily growing economic relevance it should not be excluded that they will have a more important role in Trump’s energy policy agenda.

Social

  • The plan to abolish the national health program - known as Obamacare - risks to displace millions of Americans out of their health insurance with potentially severe health/human consequences if not replaced by an adequate alternative.
  • Trump pledges to reduce immigration and deport large numbers of illegal immigrants. Hostility to Hispanic immigrants and rude Islam-phobic rhetoric threatens to deepen the racial divide and to trigger violence and social unrest. This is already visible in current protests and demonstrations.
  • Vague hints regarding abortion rights and same-sex marriage raise doubts about the U.S.’s ability and willingness to guarantee civil liberties for all societal participants, particularly the rights of women and minorities,
  • On the other hand, if Trump was to succeed in creating large numbers of (especially manufacturing) jobs it could counteract the currently widespread discontent in large parts of the country and positively influence economic and social living conditions to important parts of the population.

Governance

  • Trump’s proclaimed “America First” agenda could start a new era of protectionism, reinforce geo-political tensions, threaten the postwar international security architecture (especially in Europe and East Asia) and risk damaging America’s role as the world’s premier liberal democracy.
  • During the election campaign, Trump pledged to critically scrutinize and renegotiate multilateral free trade and free investment treaties such as the Transatlantic Trade & Investment Partnership (TTIP) with Europe, the Trans-Pacific Partnership (TPP) with 11 Pacific Rim nations, and the North-American Free Trade Agreement (NAFTA) with Canada and Mexico.
  • This, and the intention to impose steep tariffs on imports from China and Mexico – its largest trading partners apart from Canada - would most likely lead to trade wars with damaging effects on the global economy and raise the risk of political conflicts.
  • The President-elect has also pledged to renegotiate the nuclear deal with Iran, risking a fresh conflict with Iran and further aggravating the already delicate security situation in the Middle East.
  • Trump’s victory could encourage right-wing nationalists, ongoing populist and protectionist tendencies, and even the spread of authoritarian regimes; trends that can also be observed in Europe.
  • A foreign policy agenda - even if only partially implemented- will likely leave its negative impact on several of the country’s governance features, most notably, political risk and stability, but also affect the sustainability profiles of other countries around the globe, given today’s close interdependencies.
  • A positive effect on competitiveness and government efficiency could result from planned investment in infrastructure, corporate tax cuts, streamlined regulations and reduced bureaucracy.
  • Last but not least, the currently heightened uncertainty could ease again once there is more clarity about the composition of the new cabinet and the Trump administration’s future policy agenda.
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