All eyes are on the USA in the coming month as the country is embroiled in one of the most controversial US elections in history. The outcome of the November 2016 Presidential election will have global repercussions, given the USA’s status as the largest economy in the world, accounting for a quarter of global GDP in US$ terms in 2015. The Economies team turn the spotlight on the USA, from the Business Dynamics, Cities, Economy, Industrial and Natural Resources angles. At the time of writing, Clinton remains ahead of Trump in national polls but our analysis features examples of a potential Trump Downturn scenario, should the Republican candidate win, based on Euromonitor’s Macro Model. Insights include the USA facing greater competition for high skilled jobs generally; potential trade wars across US trade-dependent cities such as Houston as a result of a Trump victory, especially in light of rising protectionist rhetoric; while Mexico and Ireland are set to be the worst-hit economies should Trump win. We expect all the industries where Trump is active in his businesses to see a downturn in the event of a Republican victory, while the US position as a leader of renewable energy would also face a setback.
Business Dynamics: The USA faces greater competition for high skilled jobs
One of the key challenges facing the US economy is growing competition for high skilled jobs, from countries such as India. Trump has reassured his potential voters that he would put a stop to job migration, but this may come at a cost to US businesses. India offers a combination of high skills, English language ability and lower labour costs. The population aged 15+ with higher education in the USA equalled 86.9 million (34.4% of the total population) compared to 56.4 million (6.2% of the total population) in India in 2015, but the minimum wage in India was US$46.6 in 2015 compared to US$1,257 in the USA, which gives an indication of the wage differences across all economic segments. The growing penetration of internet in India, with 80.0% of businesses reporting to have online access in 2015, is making it possible for countries far across the borders, such as the USA, to take advantage of India’s lucrative labour market as they are now able to manage their operations remotely through technologies such as Cloud services and Skype. Unemployment rates in the USA and India, at 5.3% and 5.1% respectively, were similar in 2015, but the percentage of the unemployed population with higher education in the USA was 47.3%, compared to 15.0% in India in 2015, indicating businesses increasingly taking advantage of India’s relatively lower labour cost for high skilled jobs. The USA’s population with higher skills is projected a period growth of 11.2% between 2015 and 2020, compared to 14.6% for India. India will continue to be a low skilled economy in general, but the competitive wage rates for higher skilled workers still make India a threat to the USA.
Population by Higher Education and Minimum Wage in the USA vs India: 2015
Source: Euromonitor International from national statistics/UN/ILO
Cities: A Trump win could signal trade wars across US trade-dependent cities
Donald Trump’s position on international trade, which includes his sceptical views of NAFTA (North American Free Trade Agreement) and the Trans-Pacific Partnership, as well as his intention to place significant tariffs on goods from Mexico and China, are generally well known. What is less understood are the trade war ramifications which could be triggered across export-dependent US metropolitans such as Houston, Miami and Los Angeles. In the case of Houston, for instance, Mexico and China are the metropolitan’s largest trading partners, with US$15.9 billion and US$6.7 billion in exports in 2015 to Mexico and China, respectively. Houston’s signature export industries in petroleum, coal products and chemicals will likely feel the brunt of the effect unless alternative deals are struck with other countries. Similar conclusions can be drawn for other US cities as less export demand will raise unemployment, reduce consumption and curtail investment.
Exports as a Percentage of Total GDP in Major US cities: 2015
Economy, Finance and Trade: Mexico and Ireland will be the worst-hit economies as a result of a Trump victory
Euromonitor’s Macro Model has assigned a 5-15% probability of a Trump victory. Our Trump Downturn scenario assumes a Trump win in the Presidential election but with the government blocking his most extreme proposals and moderating his tax cuts. While we expect a sharp slowdown in the US economy, in the event of a Trump win in Q4 2016, with a forecast real GDP growth of just 0.2% in 2017 (compared to our baseline forecast of 2.1%), outside of the USA, our Macro Model shows that Mexico and Ireland would be the most affected economies, although all countries in our Macro Model will display a negative impact on economic growth. We predict that Mexican and Irish real GDP growth rates will be 0.8 percentage points lower than our baseline forecasts in 2017 (with the Trump Downturn scenario set to Q4 2016).
This is of no surprise given the dependence of Mexico on US demand for its exports (81.0% of Mexican exports went to the USA in 2015), while many Mexicans are also reliant on remittances from the USA, to fuel consumer spending at home. Similarly, the USA is a major trade and investment partner for Ireland, partly fuelled by geographic proximity and also the fact there are a large number of US multinational companies based in Ireland. The USA is also Ireland’s single largest export destination accounting for 23.7% of total exports in 2015. Both countries are set to benefit from trade deals such as the Trans-Pacific Partnership or the Transatlantic Trade and Investment Partnership so the outcome of the US elections will determine not just the future direction of US trade but also it trade-dependent partners.
Source: Euromonitor Macro Model
Industrial: How would Trump industries weather Trump downturn?
Due to increased instability, lower consumer expenditure and anti-immigrant policies that would raise costs for businesses, we expect the majority of US industries to record slower growth in the event of Donald Trump being elected President. If we evaluate the effect of a Trump Downturn on the main industries Donald Trump does business in, he might not want to win himself. Using Euromonitor’s Trump Downturn scenario to assess the impact on different industries, the US real estate industry would potentially lose close to US$400 billion in revenue until 2020, as the industry’s value growth would decelerate to CAGR 4.0%, instead of 6.5% forecast in the baseline scenario. Financial services would also decelerate by over two percentage points to 4.7% CAGR until 2020, losing US$245 billion in potential revenue. The picture is similarly gloomy for the hotels sector with US$70 billion potential revenue loss if Trump is elected.
Natural Resources: Renewable energy will get a setback from a Trump win
The USA is one of the leading generators of energy from renewable sources and is well on track to lower greenhouse gas emissions, which is particularly important being the largest contributor in the world. The US’s effort to promote cleaner energy, however, could be jeopardised in the event that Donald Trump is elected since he believes that substituting fossil fuels with renewable energy has negative economic and social implications, including putting people out of jobs and diverting public funds from more needed public services. The global supply of renewable energy from solar, wind and water was 110.3 million tonnes of oil equivalent in 2015, out of which 18.3% was produced in the USA, partly due to corporate efforts encouraged by government incentives including tax credit and rebates. Walmart is now said to be the largest generator of solar power in the USA, reported to be enough to power 200,000 homes, while Google is a leader in wind power said to buy enough to power 1 million homes in the country. Initiatives such as these are contributing towards the US government’s target of reducing greenhouse gas emissions by 26-28% below 2005 levels by 2025, but repealing government incentives to promote clean energy could be a major setback to the country’s environmental goals.
Primary Energy Supply of Solar, Wind and Other Energy: 2015