Emerging Markets / November 7, 2016

Economics, Agriculture & the Presidential Election

Against the backdrop of tomorrow’s presidential election, this article analyzes some of the scenarios that could play out over the coming months as the new administration takes office. The focus of these analyses are the effects that the next president could have on the economy and the agriculture industry.

Economics, Agriculture & the Presidential Election

The year 2016 has marked a historic and unique electoral season in the United States. Following weeks of controversy and plot twists, it is safe to say that the nominees of both major parties are seen as unpopular by large segments of the electorate. In this regard, the outcome of tomorrow’s electoral event is still uncertain and the weeks following the final tally will be crucial for the US to secure economic stability.

Traditionally, economists and investors closely follow presidential elections given that their outcome can have a strong impact on financial markets and consumer sentiment; this year is no exception to the rule. Since 2008, the stock market has seen dramatic growth, the Dow Jones index going from approximately 9.000 points in October of 2008 to more than 18.000 today. This dynamic is related directly to the innovation in sectors such as technology, but also to the fact that the stock markets have become the mainstream investment vehicle. Because of the underwhelming performance of more traditional instruments, particularly government backed bonds and other securities, this trend is expected to continue over the coming years. Only if the policies implemented by the next administration continue to grow the economy at a stable rate and decrease the real unemployment rate, will the Federal Reserve be able to implement monetary policy that makes government securities an attractive investment once again.

A major concern with regards to the next President, and Congress, is the relative unpredictability of future policies and the reaction that international markets might have. Though unlikely, the US dollar could suffer a slight decrease in value in the foreign exchange markets depending on the outcome of the election. Such a decrease in the global demand for the dollar would represent a window of opportunity for US industries that export products to enter new markets around the world. However, it would also mean that imported goods being consumed in the US would become more expensive.

In terms of agricultural trade, no major changes should be expected in the coming years. Even though each candidate has a significantly different stance as it relates to international trade and free trade agreements (FTA), it is unlikely that the US will significantly alter, at least in the short term, the amount of agricultural goods that it imports from Latin American suppliers. Likewise, in terms of exports, the US is expected to continue being a major exporter of agricultural commodities as long as trade treaties, such as NAFTA, and major partners, such as China, are maintained. Nevertheless, no new FTA should be expected, at least during the next few years. In recent statements during the campaign trail, both major party candidates have spoken out against the implementation of the Trans-Pacific Partnership (TPP). Similarly, ongoing talks concerning the Transatlantic Trade and Investment Partnership (TTIP) between the US and the European Union are not expected to reach a finalized agreement any time soon, particularly given the difficulties that recently came up with the signature of the Comprehensive Economic and Trade Agreement (CETA) between Canada and Brussels.

(Read more about Peruvian Grape Production and Export Markets)