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Clinton would hurt Turnbull’s plan, but Trump would wreck it

Trade would be hit hard if even a small part of Donald Trump's agenda passed Congress.

Trade would be hit hard if even a small part of Donald Trump's agenda passed Congress. Photo: Getty

ANALYSIS

When Donald Trump and Hillary Clinton go head-to-head in their first presidential debate at 11am AEST on Tuesday, they will be speaking to a nation, but also a global economy at a crossroads.

On one side lie the orthodox roads of free trade and austerity, while the other retreats into protectionism and fiscal largesse.

But if you’re expecting to hear Mr Trump and Mrs Clinton taking sharply different turns, think again.

While Mr Trump is clearly the more protectionist of the two, Mrs Clinton has one eye on voters who no longer believe free trade will restore global economic health.

That belief is not entirely misplaced.

Ongoing trade liberalisation, coupled with record low interest rates from central banks, was supposed to have delivered much more growth than it has done since the GFC.

That’s why the Federal Reserve decided not to raise interest rates last week – tightening monetary policy is still seen as too risky.

Slow growth is also pushing politicians into populist positions.

Jeremy Corbyn re-elected Labour leader

UK Labour leader Jeremy Corbyn is part of a global drift towards protectionism.

As the OECD said in its latest Interim Economic Outlook: “The world economy remains in a low-growth trap … high inequality and stagnant incomes are further complicating the political environment, making it more difficult to pursue policies that would support growth …”

In other words, even the moderate Mrs Clinton can’t advocate the orthodox roads back to growth – and she won’t have failed to notice the resounding re-election of protectionist Labour leader Jeremy Corbyn in Britain last Friday.

The growth dilemma

Macquarie Bank laments this shift away from free trade in its most recent research brief.

It notes: “Both candidates can be considered a shift from the current political consensus of austerity and globalisation … Both have proposed a renegotiation of the North American Free Trade Agreement (NAFTA) and to reject the Trans-Pacific Partnership agreement (TTP) …

“Trump goes further with … prohibitive tariffs (up to 45 per cent) on Chinese imports to the US until China allows the [its currency] to freely float and a 35 per cent tariff on Mexican imports that would pay for a wall between the two countries.”

Donald Trump wall Mexico

Donald Trump has promised a huge tariff on Mexican imports to pay for his infamous wall.

So the choice between Mrs Clinton and Mr Trump is pretty straightforward as far as Australia goes.

Mrs Clinton, forced into protectionist posturing, would be bad for the trade flows – but Mr Trump’s blatant anti-globalisation stance would be far worse.

While Mr Trump’s full radical agenda wouldn’t make it through even a Republican-dominated Congress, enough of it could stick to cause a major slowdown.

A more protectionist US economy would cause the USD to rise against other currencies and create a glut of goods and services outside the US which American consumers would no longer regard as cheap.

That would cause a deflationary pulse through our region – frustrating governments whose low interest rate policies have failed to boost growth and lift inflation to healthy levels.

And when low rates fail, the more direct way to stimulate the economy is to spend, spend, spend.

Trumping Australia

That’s why a Trump presidency would be a horror result for the Turnbull government.

Its economic strategy is the orthodox plan that other leaders are backing away from. It talks constantly about cutting spending, balancing the budget, and allowing its free-trade deals with a number of nations within our region to boost exports and growth.

So a Trump victory at the November 8 election would be very bad indeed – the Turnbull government could stick to its guns and watch trade slow and recession raise its ugly head, or it could spend more borrowed money to boost demand.

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If Hillary Clinton wins, there will still be some pain. Photo: AP

If Mrs Clinton wins, there will still be some pain. The Federal Reserve will be more likely to pull the rates trigger at its December meeting, which would also boost the US dollar a bit.

But Trumpageddon is what even the right wing of the Coalition should be praying to avoid.

Yep, Australian conservatives should be hoping for a progressive government in the US, so they can go on being as conservative as possible here.

A strange world, but with Donald Trump in with a chance of leading the free world, what do you expect?

To read more columns by Rob Burgess click here.

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