Not only is the U.S. Presidential election too close to call, it’s far from clear what impact either candidate would have upon taking office. Whoever wins will face the same economic challenges: “a fiscal cliff, a regulatory mountain, and a jobs depression,” says Gerard Lyons, chief economist with Standard Chartered in London.
Neither candidate has laid out a clear plan for resolving the fiscal cliff, which is “the elephant in the room,” observes analyst Phil Thornton of Clarity Economics. Lyons adds: “Businesses are wary of the regulatory environment if President Obama is reelected, but there is naturally a lot of uncertainty with any newcomer such as Mitt Romney.”
Thornton says that, early on, the Republican candidate appeared to be a fiscal hawk, “but he has since mollified his stance on a range of issues. Businesses like clarity and stability, so that may count against him.”
Lyons says it’s not clear whether big U.S. companies are claiming concern about regulation to justify their lack of investment. “My feeling is that if domestic demand picked up, businesses would naturally become more optimistic and would start to invest,” he says.
In the international arena, Romney has been particularly hawkish about China, notably accusing it of “cheating” through currency manipulation. Lyons believes that’s simply a playing-to-the-audience campaign ploy. “You need to judge people by what they do when in office, rather than what they say when campaigning,” he says. “Four years ago, a lot of very negative things were said in the campaign about protectionism, but none of those came to fruition. People need to be a bit more pragmatic about whether what’s said in the campaign will be exactly what they do when in power.”
But Obama’s “Asian pivot” — his policy shift that looks to improve diplomatic, military, and trade ties with countries in the region other than China — is, Lyons believes, “the most important international policy development, and I would expect that to continue regardless of who wins.”
Noting Romney’s promise to brand China a “currency manipulator” on his first day in office, Thornton says, “Obama rejects that but points to his own success in getting the [Chinese currency] RMB to strengthen 11% against the dollar since he took office. Both blame China for the loss of U.S. manufacturing jobs and say their tough stance will reverse that. Both are wrong. The dollar has been in long-term decline since the turn of the century, yet thousands of jobs have been offshored. Rather than reverse that, rising protectionism will hamper the recovery.”
Still, Lyons says, the winner on November 6 could actually inherit an improving economic outlook. “The housing market looks like it’s turning, and big firms have the balance sheets to spend if they see any pickup in activity,” he says.
But whoever wins, Lyons notes, fiscal policy will have to be addressed this calendar year during the “lame duck” period. “Monetary policy must continue on regardless,” he says.
Andrew Sawers is editor of CFO European Briefing, a CFO online publication.