ALEX BRUMMER: New threat from Trumponomics if Donald wins the election

No one can be absolutely sure what impact the attempted assassination of Donald Trump will have on the outcome of the November election, but after the Republican candidate’s forceful response to a narrow assassination attempt, Wall Street and the global economy should brace themselves for a second dose of Trumponomics.

President Biden and the Democrats may have their way, but polls and political donations now lean in Trump’s favor ahead of this week’s Republican convention in Millwaukee, Wisconsin, a key swing state.

The denizens of finance are a fickle bunch. They are often liberal and socially conscious in their politics, but they are fully committed to laissez-faire economics. Old-school centrist Republicanism, which seeks to balance the budget, still persists in “white shoe” investment firms. Trumponomics, though Donald is one of their own, has few real followers. Yet many businesses are fed up with the regulatory quagmire created by President Biden and a Federal Reserve burned by the mini-banking crisis that took out Silicon Valley Bank and others.

Banks would be delighted to see the higher 20 percent capital requirement curtailed and enforced by the zealous Securities and Exchange Commission and consumer protection fanatics.

Following the release of a slimmed-down Republican platform, equivalent to our party’s manifestos, the financial community, citizens and the world now have a sense of what a second Trump will look like. Internationally, Trump’s protectionist instincts are a cause for great concern. Conservatives, in power, were disappointed by his efforts to forge a free trade agreement with Washington. Rachel Reeves, who lined up behind Bidenomics, may have to deal with a very different America.

Trump has pledged to raise tariff barriers against China from 50% to 60% and impose a 10% tax on imports. Given that the US is Britain’s biggest trading partner and we have a surplus in our American exports, that can’t be good. It means that globalisation, which brought so much prosperity, is in jeopardy.

On the fiscal front, Trump is a staunch supporter of tax cuts. His main ambition is to extend his signature 2017 package of tax cuts and job creation. Arguably, that is why the US economy has boomed. If extended, the corporate tax rate would remain at 21 percent. There are signs that it could be cut further to 20 percent. Personal tax cuts, which have benefited the wealthiest, would remain in place.

Trump’s package is estimated to cost $4.5 trillion over a decade. It could be partly funded by tariff revenues ($3 trillion) and by the end of Biden’s subsidies for carbon emissions reduction. The federal deficit will continue to rise if Trump regains power or if Democrats hold on to it. The United States is better positioned than most to sustain large, unfunded budget deficits because central and commercial banks around the world have no choice but to hold dollars as reserves or capital.

What worries markets is Trump’s dismissive attitude toward the independent Federal Reserve. As a real estate mogul, Trump knows better than anyone how high interest rates cause real estate values ​​to plummet as leverage costs rise. He has already fallen out with Jay Powell over perceived high rates, even though the Fed chairman is Trump’s pick. Verbal pressure to cut rates is suspected to peak after November 5.

Public bickering between the Fed and the White House could well unnerve markets. Even an erratic figure like Trump is not supposed to dare to oust the Fed chief, though there are precedents. A tempestuous Trump presidency could be as unsettling to markets as a confused, veteran president supported by competent advisers.