1. Regardless of the outcome, the President of the United States is not all-powerful.
The American government is founded on the separation of powers: executive, legislative, and judicial. The United States Constitution endows each branch with powers to counterbalance the other branches - it is a system of checks and balances. The US Congress, who holds the legislative powers, has the capacity to overide a President's veto if they are able to revote on a law with a two-thirds majority.
André Kaspi, a historian specialized in the United States, confirms, « The American President is largely dependent on a majority in Congress in order to execute his policies, without which he must negociate and compromise on his vision. He must also take into account the Supreme Court and its ability to intervene." He is not therefore all-powerful.
2. The macroeconomic point of view : the US economy is taking a worrying turn for the worse
The US election is playing out in a particular economic context, explains Mathilde Lemoine. This is characterised by disappointing growth, at both the short-term and structural level, which is exacerbating social tension, and by an economic output which has steadily decreased over the presidency of Barack Obama.
Since January 2009, when the current US president took office, growth has slowed down sharply, to a level of 1.5% on average per year versus 2.1% per year during the presidency of G. Bush. Moreover, Americans’ median income is still lower than its pre-crisis level. In addition, potential growth is weakened. Three factors are to blame:
- insufficient investment
- a decrease in labour force participation (63% today versus 66% before the crisis), partly caused by an ageing population and a mismatch between demand for and the supply of qualified labour
- the American system’s inability to create sufficient businesses to replace those that went bankrupt during the crisis.
All this comes to the backdrop of lessening US influence across the world. America has lost its place as world leader to China, and its share of international trade is shrinking.
"China has contributed 36% to world growth since 2008, versus 12% for the United States."
Group Chief Economist
Since 2008, the USA has become the champion of protectionism.
Thus, it will be difficult for the 45th US president to change all that. Of course, the programme of the Republican candidate could cause a sharp slowdown in world trade and an increase in the risk premium in the USA, but the central banks are apparently taking action, just like they did after the vote in favour of Brexit. The election of the Democratic candidate could provide some relief and accelerate growth, thanks to the programme to increase public expenditure, but the low participation rate will still curb a long-term improvement in activity prospects.
3. The viewpoint of the markets: the US election, a minor event?
Hillary Clinton stands a good chance of winning, and investors are counting on a divided Congress composed of a Democratic Senate and a Republican House of Representatives. This will have lesser consequences: it will be difficult for Hillary Clinton to push through reforms that will have a true effect on the banking and healthcare sectors.
“We’ve never yet seen an election which affected the markets in a lasting way.”
Head of Asset Allocation and Sovereign Debt, Edmond de Rothschild Asset Management
The riskiest scenario is that of an alignment of the parties: Hillary Clinton supported by a Democratic Congress or Donald Trump in power, accompanied by a Republican Congress. We would then probably witness a downturn on the equity markets as they wait to see which policy will be implemented.
However, for the International Equity team of Edmond de Rothschild Asset Management, the risk of a real crisis on the financial markets due to a complete majority of one or other candidate appears slight.
The US elections will remain a minor event if Hillary is elected without majority in Congress. It might not be so for other scenarios.
>> Read the analysis from Christophe Foliot, Head of the Management of International Actions, and Benjamin Melman, Head of Asset Allocation and Sovereign Debt, Edmond de Rothschild Asset Management