The election of Donald Trump to the US's highest office in November scored highly on the political Richter scale, probably even stealing the limelight from the UK's decision to Brexit as the most significant political moment of 2016. As we look forward from today's inauguration and try to look beyond populist hyperbole and policy (at present, largely delivered by tweet) we have been looking at what the impact Trump could have both on the US and on the UK, our economies and the outlook for M&A.
In the US, Trump has promised to revive the economy by slashing taxes and stimulating the domestic job market by imposing potentially punitive tariffs on products from overseas and renegotiating trade deals such as NAFTA. While the populist logic of some of the measures he is proposing can be seen, an obvious risk is that, as well as weakening US economic influence and export opportunities, turning inward will drive inflation as consumers pay more for goods that could have been produced more efficiently elsewhere.
The US domestic M&A market
In the US domestic M&A market, there is optimism that the real estate mogul's election combined with Republican control of both Houses will create a positive deal environment, potentially with a lesser focus on antitrust matters and fewer interventions by the US Department of Justice when scrutinising domestic deals - as has held true during previous Republican administrations. A mooted reduction in the 35% tax US companies' pay on cash profits remitted from overseas subsidiaries to 10% would also be a positive driver of domestic deal volumes as companies look for ways to spend this repatriated cash. On the flip side, Trump's potentially more protectionist approach could spell trouble for inbound M&A volumes, as well as longer term economic growth.
The UK domestic M&A market
Turning to the UK, Trump's promise to very quickly draw up a trade deal with a post-Brexit UK appears on the face of it to be positive news, given the US is the UK's single largest export destination (after the EU as a whole) and in 2015 the UK had a trans-Atlantic trade surplus of $6.5bn. However, a desire to show that the UK has a bright non-EU future should be balanced against the risk of a hastily agreed US-UK deal that gives more than it receives, especially in light of the difficulties experienced in trying to agree the stalled Transatlantic Trade and Investment Partnership. A positive worth noting is that Trump's protectionist policies focus largely on the maintenance of blue-collar industries rather than white collar services in which there is a greater degree of competition between UK and US firms.
In respect of M&A, Trump's generally pro-UK (and at times anti-EU) views are likely to mean that, at the very least, his presidency will have a more positive impact for the UK than for other major European economies such as Germany, which has strengths in automotive and life sciences, important US manufacturing sectors. While there are potential pitfalls with a rapid trade deal, the certainty it would provide and the potentially favourable legislative and financial terms it could help create could be a boon to UK-US M&A, as the most important inbound and outbound marketplace for UK companies.
Likewise, making the US market harder for overseas investors to access is unlikely to stem the tide of Asian capital to the West nor to reduce the abundance of capital available at low borrowing rates to support this. Instead it is likely to simply change the direction of the flow to more open jurisdictions, such as the UK.
The election of Donald Trump represents a fundamental shift in US outlook unprecedented in recent times, however, as with Brexit, thus far, the promised negative effect on economic indicators has been muted and, in terms of M&A at least, it appears that Mr. Trump may yet live up to his reputation as a 'deal-maker'.