Fathom Consulting looks at the range of possible economic implications if Donald Trump actually wins. They also assess how to trade a Trump victory. And why he is even an option

Fathom Consulting looks at the range of possible economic implications if Donald Trump actually wins. They also assess how to trade a Trump victory. And why he is even an option
Surely not. But what if ...

By Fathom Consulting*

In this Newsletter, we discuss the economic and financial market consequences of a Donald Trump victory in next month’s US presidential election. We outline Mr Trump’s policy agenda and simulate two possible outcomes, Trump Lite and Donald Dark, based on the extent to which he delivers his planned agenda.

The prospect of Mr Trump becoming the next US President has alarmed many economists and investors. Indeed, in the extreme, Mr Trump poses a significant risk to not only the US economy, but the global economy too. However, it is doubtful whether Mr Trump intends to fully deliver the programme that he has set out – which politician ever does? And even if he wanted to, we doubt that he could.

As illustrated in the chart below, in our Trump Lite scenario, the most likely of our two simulations, US GDP growth is slightly higher than the consensus-implied baseline. However, in our Donald Dark scenario, which assumes a massive fall in global trade, growing isolationism and much lower US population growth, US GDP growth slows rapidly next year and the economy enters recession in 2018.

Plenty of sound and fury

A number of checks and balances exist to prevent the US President from having free reign: new US laws need to be approved by Congress (both the Senate and House of Representatives), not just the US President. The Supreme Court has the power to overrule these laws if they are deemed unconstitutional.

Assuming Mr Trump wins next month’s election, the Republicans would probably keep control of both the Senate and House. But even then, there s no guarantee that they will pass the laws necessary for Mr Trump to push through his agenda. The

US President cannot remove Supreme Court judges, or heads of independent agencies such as the Federal Reserve. However, the President can nominate candidates for vacant positions, which must then be approved by the Senate.

Donald Trump’s agenda in brief

Mr Trump has campaigned to improve the fortunes of US workers by reducing the US trade deficit and increasing US manufacturing employment. To do so, he has pledged to tear up or renegotiate existing trade agreements such as the North American Free Trade Agreement (NAFTA) and walk away from trade deals in the pipeline such as the Trans-Pacific Partnership (TPP). He has also threatened to slap tariffs on imports from China and Mexico to the tune of 45% and 35% respectively, after branding the former a currency manipulator.

Mr Trump has said he would deport an estimated 11 million illegal immigrants, increase border patrols and build a wall between the US and Mexico. These policies would reduce US population growth and US GDP growth. But Mr Trump has proposed a number of progrowth policies too. These include lowering energy costs (albeit at the expense of the environment), boosting labour participation by subsidising childcare, cutting regulation, increasing government spending and cutting taxes. For these reasons, it seems, many US small business owners prefer Donald Trump to Hillary Clinton.

Mr Trump’s fiscal plans would cause US government debt to rise significantly; independent estimates range from US$2.6 trillion to US$9.5 trillion over ten years.

Trump Lite

In our central Trump scenario, which we call Trump Lite, nothing much changes. In this world, either Mr Trump backs down on his more controversial proposals, or he is unable to pass the laws he needs to enact them. Accordingly, we assume only a small number of deportations and minor trade disputes with China and Mexico. Broadly speaking, business carries on as usual.

Less immigration and less trade would be bad for US GDP growth, but we think that Mr Trump’s probusiness policies and fiscal package would offset this. Overall, we expect a small net positive boost to real US GDP in this scenario. Moreover, to the extent that Mr Trump’s fiscal policies are inflationary, his victory may enable faster normalisation of US interest rates. As we have highlighted in the past, we think that this would be good for the US economy.

Donald Dark

There is a risk that this all goes horribly wrong. The US President has relatively free reign to start a trade war by using existing US laws, thereby avoiding approval from Congress.

A US President could, for example, slap tariffs and quotas on imports by invoking the International Emergency Economic Powers Act (1977) or sections of the Trade Act of 1974.

The legalities of these tariffs would be challenged in the courts by US firms and other countries, who are likely to retaliate. In short, things could get messy, with Trump’s presidency feeding the mood of isolationism and populist politics. It could also contribute to events such as a ‘hard Brexit’ and Marie le Pen doing well in the French presidential elections, both of which would fuel concerns about the future of the European Union.

In this world, we forecast a sharp fall in global trade, as well as a sharp slowdown in the annual rate of US population growth (from 0.8% to 0.2%) due to the mass deportation of illegal immigrants. US GDP falls sharply from baseline (see chart on first page) and the global economy enters a 2008-style recession.1

For all of Mr Trump’s inflammatory rhetoric, we think that the most likely outcome of a Trump presidency would be something closer to Trump Lite. That said, investors should brace themselves for the risk of Donald Dark and hedge themselves against that outcome, where possible.

How to trade it?

In either world, the stand out trade would be to buy the US dollar. Assuming an initial risk-off reaction to a Trump victory, we think that the US dollar would rise due to safe haven demand.

It may seem curious that the US dollar would benefit from safe haven demand, even though the US is the source of these concerns, but that is exactly what happened during the 2008 global financial crisis.

In the Donald Dark world, safe haven demand is likely to keep the dollar supported in the nearand medium-term. In our Trump Lite scenario, the initial appreciation of the dollar post-election may well be reversed, but as soon as it became clear that the US economy would continue to grow (indeed, grow faster than in our base case) the dollar would be likely to appreciate once again. Higher US interest rates as a result of better-than-expected economic outcomes and higher inflation would also drive the dollar higher in the medium-term.

We also think that the US dollar would appreciate if Hillary Clinton wins, since US interest rates would climb faster than investors currently anticipate. Either way, in our view, now is a good time to buy the US dollar.

US Treasuries would also benefit from safe haven flows after a Trump victory. Under our Trump Lite scenario, we think that this would be short-lived. Whereas in the Donald Dark world, Treasuries would continue to benefit from safe haven flows.

Equities fare very poorly under our Donald Dark scenario due to a significantly weaker growth outlook. Diminished trade results in a smaller economic pie, with labour’s share of that pie rising significantly due to greater bargaining power for workers as the available pool of labour shrinks. This is a double-whammy for equity holders who suffer from both a smaller pie and reduced share of that smaller pie.

In Trump Lite, the economy is a little bigger than it otherwise would be, although since labour’s share of income also rises in this world, equity holders are worse off than they would be in the consensus implied baseline (at least, before considering any changes to the US tax code).

Another way to benefit from a Trump victory is to hold a short position in either the Mexican peso or Mexican stock market going into the election. As our chart highlights, the Mexican peso falls and the Mexican stock market underperforms when Mr Trump does well in the polls.

How did we get here and what now?

The emergence of Mr Trump as a political force reflects a mood of growing discontent (in the developed world at least) about immigration, globalisation, inequality and the benefits of free trade. Low earners in rich countries feel that globalisation has not worked for them. Judging by the fall of labour’s share of income and the widening gap between the real income growth of the richest and poorest households, that concern may be valid.

Indeed, as Edward Luce from the Financial Times noted in a recent article, “if Mr Trump loses it will be due to character – not because of his message”. The forces that have brought Donald Trump this close to the Presidency are akin to those unleashed by the Brexit referendum in the UK, and to those behind the rise of extremist parties across the developed world. Those forces are likely to remain in place whether or not Mr Trump prevails.

 1. The baseline in our simulation is the consensus implied path

Fathom Consulting is a London-based research house supplying macro research and advice on the macro economy and financial markets to a number of the world’s leading corporate and financial institutions, governments and policy groups. This article is a re-post of an item emailed to subscribers. It is here with permission.

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.


Donald Trump is a bad comb over with an idiot hanging off it.

I don't actually disagree with you, but I am trying to rid our comment content of personal abuse - of anyone (other commenters, authors, public policy makers, even politicians). And I suppose that will have to include The Donald. So, even in this case, please refrain.

Criticism of ideas or policy positions is fine. Reasoned argument is fine. It's just the personal abuse I want rid of.

[Sorry, this is just the type of personality-based smearing and abuse we don't need here. Issues can be criticised in a reasoned way, but no insults, smears, "just as bad as ...", and the like, of anyone. We don't want to turn into just another blog for epithets. Ed. btw, I left the one above up to show what is not acceptable, not to draw "he said/she said" responses.]

Sorry David and yes I do support your view, though Donald Trump is a political figure and therefore up for public scrutiny.

Also his stupidity is widely recognised by the global media and hopefully the voting public alike. Even the BBC calls and describes him as a fool. So I guess my comment on his political policies are; that he will grind the US in to the ground and be an economic disaster - not just for the US but for the rest of the world too!

Look, I don't like the guy, he seems barely human at times, but never underestimate the enemy. He is not an idiot, he has pulled off a massive coup in the Republican Party which is a huge political achievement.

He has also helped to transform the narrative as the article shows. Globalisation and multiculturalism do have a dark side, it is not all peace and light. People are now free to talk about this in a rational manner while previously they were immediately branded racist.

I reckon he would be just crazy enough to set the world to war if he doesn't get his own way, but none of his kids will be asked to be cannon fodder, just as he avoided being it for Vietnam. It's like part of him never got past 3 years old so self centred is he. I cannot stress enough how foolish it would be to put him in charge of a country. Any country!

This is what I don't get . Hillary Clinton has has said she would attack Russia if she thought they stepped out of line or did a cyber attack ( how can that be verified ), so when ever the President wants .

Trump said that he could work with Putin/Russia . Why is that bad?

The US and Russia working together? That would be a spectacularly good thing if it were to happen and it was genuine. Trump and Putin together, um, I don't think so.
Putin is as cunning as a sh*thouse rat and I reckon he is keen on Trump becoming president as he sees the opportunity to ridicule the States and Trump should Trump win. He sees himself as able to run rings around Trump, he sees it as his golden opportunity for Russia to finally "trump" the US. He hates the US and wants nothing more than to see it toppled from its pedestal to be replaced by Russia. It makes me think back decades ago when my father used to say, if Russia and America were to go to war, China would be the winner. I fear his words are more relevant today than they ever were.
Putin is also fairly narcissistic as well, though not in such a deluded fashion as Trump. Trump I compare to Colin Craig in oblivious narcisssism, totally unaware of what is going on around him, completely unaware of how he is coming across to people or caring about what effect his actions may be having on others. That is narcissism, narcissists live in their own world, Craig does, Trump does.
Trump would likely have had a childhood where it never really dawned on him that the world did not revolve around him, as all little kids think, there was no reason for him to, he was insulated from the real world by his daddy's money. He's grown up surrounded by sycophants, money does that, I wonder if he will have had anyone that ever pulled him up about things he's done and said or ever said no to him.
I have found Trump odd all along, I saw the doco "You've been Trumped" before there was any talk of him becoming president, and I most certainly did not like what I saw. His MO was to badger authorities until he got what he wanted, there is always someone who can be bedazzled by money, just as money is an aphrodisiac to some women.
Trump is on a self aggrandizing mission, nothing else.

I agree with what you say but most is the same for Hillary .
I actually think Putin is afraid of Hilary and she is certainly a continuation of US / UN foreign policy
The march to WW3 has begun

These are direct threats of WAR. It's nuts and at least there is a chance with Trump. I don't really care about any other issues because we all will be done

In my opinion the likelihood of war is far greater with Trump as he will not have to nous to deal with anything on a diplomatic front; I cannot think of one country in the western world that would be looking forward to having to deal with Trump. Remember Trump is nuts.

Well I hope we don't find out

'We came, we saw, he died' sounds 'nuts' to me . After Gaddafi said he would surrender and leave

Still doesn't stop Trump being nuts. It would probably be best if the GOP manage to get rid of him, but frankly they have too much religious content in their politics for my liking.
Just listen to that tape on that bus a few years ago, forget what he is saying,I am happy to accept men being boys, just examine how he is saying it, especially about kissing women, he sounds like an 12 year old fantasizing about an imaginary encounter. That is about the level of his eq. I cannot believe people cannot see what is in front of their eyes.
He is far more dangerous as he is immature in so many ways.

World media is largely corporate owned and not impartial. It's really protectionisn vs globalism. The establishment wants the status quo but many feel we are heading down the wrong track of income inequality, free trade but not fair trade. The media will bag Trump, for the way he looks, his loose mouth etc but that's not really what it's all about. The world economy is finely ballanced and on the brink of recession but many who aren't benefiting from globalism are already in recession and all have votes. If the economy crashes if Trump is elected they will blame him, but the reality is the economy crashed in 2008 and has been supported by zirp, which has supported the rich and destroyed the middle class, and caused a wealth transfer not growth.


Thank you for the common sense. I hate when people blindly hate on Trump without giving a reason. Globalism needs to die, it is the cancer. The reason why anyone in the world can buy houses in NZ.

I can pretty much guarantee he does not really care about Americans, this is a vanity project for him, he is dangerous, whatever his policies are. If you were looking for someone who actually cared, that was Bernie Sanders or Elizabeth Warren.
I strongly suggest that you all, if you haven't, watch the documentary "You've Been Trumped" made a few years back, before all this presidency malarkey, about the golf course he created in Scotland. The true, "don't care about anyone but me", Trump shines through. The guy is so out of touch with anything outside of his own image of himself, that when he stepped off the plane in Scotland after Brexit, he was full of praise for them voting to exit. Had not even bothered to find out they voted to stay in the EU. He is hated there.
I keep everything crossed that US citizens are not so stupid as to elect this guy. Clinton may be far from perfect, but she won't go off on a dangerous tangent that Trump will surely do if confronted on anything.

You cannot guarantee anything of the sort, Aces. Besides, why should anyone believe what you say about what Trump may or may not do? If you actually take a look at both candidates, Hillary is much, much more hawkish than Donald Trump. It's ironic; leftists and democrats have gone from frothing at the mouth over neocon Dubya and his ruinous trip to the mid-east to stridently backing a career oligarch who wants to follow in his footsteps and help create Iraq 2.0 in Syria. They never really cared about war and peace, they just want their candidate in power.

I cannot believe people can't see the guy for what he is, frankly. I think it is better to swallow some dead rats and go with Clinton for now than risk the country with Trump. Look at the guy, for crying out loud!!!!!

Frankly, I don't care what his "policies" are, I am opposed to globalization in its entirety myself, but, please can everyone just take a long, hard look at this guy. He is the quintessential narcissist, and for my money, that demonstrates the extreme danger he would place the US in.

Saw the millions to be made through SuperPAC fundraising scams and got in on the action.

As opposed to the candidate who wants to fight Russia over lacked emails. Do you people even read your posts?

I could ask the same of you

You cannot honestly be against globalisation and also complain about Trump's character. The gravity of the radical open borders agenda that Clinton supports far outweighs any niggling character flaw you may think matters. Support American nationalism in the form of Trump or support globalism; take your pick.

Yes I can and I do. Trump is bananas. Trump's flaws are not niggling they are critical.

My god, man. If they were that critical he wouldn't be where he is now. Think about it.

Actually, exactly the opposite, a fair dose of narcissism and a bit of psychopathy make the perfect recipe for making money because you don't give a damn about whose toes you tread on or what others think of you.

What are his flaws? Real flaws, not bs.

He is a misogynistic, racist, narcissistic psychopath. Evidence, everything I hear him say, and everything I see him do.

Proof of these accusations? Can you quote something racist he said? Funny how comments critical about Hillary get removed yet baseless accusations about Trump stay

Ok you asked for it
These two articles pretty much some it up, they are both fairly good sources, I was aware of most of what is in them, no way could I have relied totally on memory for them.
Even the Republican Party itself would like to divest themselves of him!

Yeah and don't forget the sexism and Trump's general misogynistic attitude.

BBC article: US election: Senior Republicans condemn Trump's lewd comments about women

Humm... Yes alienating 50% of your voting public, yeah really smart move Donald.

The guy is up front. States his case.
Doesn't hide behind weasel words.
Not compulsory to vote for him.
Sometimes a dose of reality does a country good.
And NZ is very reliant on US support.

What so you really support this narcissistic, misogynistic, racist, psychopathic and tax evader then?

Indeed I do.
The labels you apply are of your making.
Political affiliations are an option open to any individual.
The US has been in decline since it opened it borders.
It was a mistake to do so.

And the US will decline even further under Trump, mark my words! And I'll be back to tell you I told you so!

Or are you worried about China because Donald certainly is: https://www.youtube.com/watch?v=RDrfE9I8_hs

Yeah. I have lived and worked in China. A couple of years.

Yep me too, and lots of other places around the world. Which unfortunately will be come a lot more restrictive under Trump, they'll all be building political walls to keep him out. Ahh well...

Bush 43 spent trillions of dollars on useless wars in Afghanistan & Iraq when U.S. infrastructure was falling apart. Clinton will continue the Bush legacy of foreign wars as the Clinton-Bush families are very close friends.

Then there's the university and how on one hand he bleats about American jobs being outsourced and lo and behold, guess where his stuff is made. There is the tax declarations or the lack thereof. There is how he has spoken of women, particularly. There is every time he opens his mouth and garbage just spews out. Shall I go on?
Watch that doco, if you haven't already.

The economy may be growing and "ticking along nicely" but what matters is how that affects people in ways that are measured and not measured. Every morning a bank economist crows about how well the economy is doing. Means what?

How many of the conflicts in the world today has Trump sent troops to or financed one side or the other?

Some of the people here seem to think he's literally Hitler.

Well he is not, literally Hitler is dead. But there are similarities in the way he is managing to hoodwink people.

Let's give him a chance first, shall we. The guy is crazy!!

Not as crazy as Hillary Clinton is by trying to start World War 3 with Russia.

Oh Donald can do that all on his own but he'll want to build a wall first.

If Trump is such a disaster then what of the status quo here? The BNZ etc puts on lavish sponsorship of Mai Chen's Superdiversity Stocktake, (nothing to do with mortgages of course) however Wellington economics consultancy has a different take on things
They can't both be right.

Look the whole system is effed, but putting your trust in someone who has used the system to the max for his own gain? I mean really?

The Clinton Foundation rings a few bells regarding maximum gain.


If out of a population of 350 million, these two candidates are the best America can come up with, it is no wonder it and its debt are the toast of the World.

If we follow in their footsteps, we will be toast too.

Oh....I forgot we already have, in many, many more ways than one.

DP...re the DT's

It was probably worth saying twice though. Dead right to all of America and it comes down to these two. Effed it is, effed.

My mantra is always the same. I do repeat myself endlessly.

If these people are the solution, why are they the "Problem" big time, first.

They give me the DT;s.....each and every time they open their mouths......... and fiddle the books..

I figure if I repeat myself endlessly,at least someone might take more notice. But judging by turnout numbers for even simple local Council elections, only 36% can be bothered.....something all Politicians ..............count on. I presume the rest are gambling away...............on houses.

Diplomacy is not my strong point, nor his.

Donald is a narcissistic groper, clutching at straws, among-st his other foibles...

Donald wants the Presidency, so he can love himself some more., plus control the outcome.

Hid Daddy saved his bacon. Many times. Gambling on his his gambling empire building machinations will never produce a satisfactory outcome.

It is too close to Mafia predilections for my liking.....too.... It is not the Billions tied up, all of America is the same...an Illusion of Grandeur is all it is.

QE can give an illusion of State, but it is a fiddle, while Rome Burns...and the EU fails miserably.....a little interest compounding the problem, in a very big way, but masking the real problem...People...in power, with a vested interest.

I bet you a pound to an American Dollar, or a Euro, neither Hillary, nor Donald is the answer.

And with Putin (Another big problem)...wanting to spend his ill-gotten gains on a rebuild of Cuban Missile Locations, diplomacy and a fight over their own agenda is on the cards....so a Casino Owner is not the best one to bet on, but neither is a 49-51 stacked deck...this close to election time......either.

Anyone with a very in-vested interest , like our own politicians is never the right answer either.

If you can buy your way into power, with filthy lucre, then we are all screwed...(Especially on the take, with your money)....and it seems we all are....\

Corporately, you can get away with Tax evasion, as can a future, possible USA figure head. and a South Seas Laundry Business, set up to give credit to credit, where it is due...Trust me, do I have a deal for you.??.

Plus Donald's opposition spokeswoman, has a terrible Memory and a forgiving nature about other loose women, so not the one to point the finger...but will do anything to re-live in the White House at any cost to her husbands Supporters....a match made in Heaven and Israel....and a lot of other places too.

Some men will take advantage of their position and I cannot think of a Politician, who didn't.

Even locally, we have some supreme examples, that I will not mention...again....today..

But then...I do repeat myself....in different ways.....and different Places....Pocket-Aces.

Interest is only one place....

So I had better get cracking...or is it Fracking....

Who dares....wins.

I can see even more clearly than ever. 20/20 vision....and it ain't a pretty sight.

Watched it.what a git.
Biggest takeaway was to see the people who enable such gits. The head green keeper and the police and security digger drivers etc. All bought by the money and the talk they'll do anything and happily lie through any situation, quite scary.

It's an hit piece.
Put locals complaining about development on the idiot box, everyone has a crying moment.
But when the local economy flourishes, after the hard work is done, the risk is taken and paid for, they will go back to watching Coronation St and pat themselves on the back on how smart they are to have moved into the right neighborhood.

Yea nah. Can't say I saw that in it.

Given the Scots still hate his guts I doubt that is the case.He ruined a complete environment for his own gain, what complete prick.

https://www.washingtonpost.com/politics/trumps-top-example-of-foreign-ex... and after his bully tactics to get what he wanted he is now trying to prevent a wind farm being built. He is a grade A a...hole

Of all the money raised by the Clinton Foundation only around 5% has actually gone to charities and you can bet that none of it has gone to the mainly black communities that were destroyed by Slick Willie's NAFTA.