GeoPulse Update (10 Nov 2016): the Trump election and US political risk
November 10, 2016
GeoPulse generates real-time political risk analysis across the G-20
The Trump election and US political risk
Although our political risk models for the US factored in the faulty consensus that Hillary Clinton would win this week’s presidential election, from its inception GeoPulse has anticipated and tracked the increase in social polarization (see the green ‘Social’ line, below) which presaged Donald Trump’s surprise victory.
As a result – and given elevated security risks (captured by the brown ‘Security’ line) and the structural political uncertainties surrounding a major election (captured by the blue ‘Governance’ line) – GeoPulse predicted an increase in top-line political risk (pink line) in the run-up to and immediate aftermath of Tuesday’s election
As is clear in the above graph, GeoPulse expects all major categories of political risk – Governance risk, Security risk, and Social risk -- to increase in the next 2 months. An extremely divisive campaign/winning candidate and an electorate deeply polarized along political, economic, ethno-religious and even spatial (i.e. rural-urban) lines will keep social polarization high and growing, upping the risk of protests, demonstrations, hate crimes and the like (although at a decelerating pace).
Meanwhile, Trump’s aggressively protectionist trade policies, loose talk about the use of force (including nuclear weapons), and vocal challenges to the utility of longstanding US alliances in the north Atlantic and east Asia have already unsettled US international relations and will almost certainly continue to do so, despite the inevitable post-election moderations. In addition to persistent terrorism risk, this uptick in geopolitical/systemic instabilities is driving Security risk higher.
Taking the same analysis out 6 months (to the right) and then a year (below) reveals a longer-term increase in US political risks under Trump, which then stabilize at an elevated level.
Social risks are projected to track uncertainty and then greater clarity over Trump’s immigration policies, increasing and then retracing a bit in the longer-term. Security & geopolitical risks are projected to rise more consistently over time.
Understanding the path of Governance risks (blue line) requires more unpacking. In short, a substantial increase in trade policy risks (i.e.exiting/ renegotiating trade agreements, higher tariff and tariff barriers on key trading partners, etc) and macro policy risks (stemming from a more adversarial relationship with the Fed) are offset by a likely decrease in micro policy and regulatory risks from lower taxes and the repeal of Obamacare.
For comparison’s sake, examining GeoPulse’s top-line political risk 1-year projection for the US versus peer developed markets in the UK and France is instructive.
Before Trump’s victory, GeoPulse projected political risks in the Brexiting-UK as higher than (but still quite close to) the US, but now the trend lines have switched place, with the US tracking consistently higher than the UK, albeit at a similar pace/slope. At the same time, both countries still appear less politically-risky than France, which will experiencing its own uncertain and probably divisive election cycle in 2017.