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Economist on Trump's impact: '¯\_(ツ)_/¯'

Nov 18, 2016, 20:15 IST

Justin Sullivan/Getty Images

Paul Ashworth, the chief economist at Capital Economics, does not know what to make of President-elect Donald Trump's impact on the economy.

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In fact, Ashworth is so undecided he could only entitle his note to clients on Friday, "Trump: ¯\_(ツ)_/¯," using the emoji known as the "shruggie," which indicates uncertainty in internet parlance.

"More than a week on from the election, there is still considerable uncertainty surrounding what fiscal, trade and regulatory policies President-elect Donald Trump will pursue," wrote Ashworth in the note.

Essentially, Ashworth said that the large amount of uncertainty surrounding a Trump presidency makes it near impossible to truly discern the economic outcomes of Trump's policies, or even what the policies will be.

The market has already seemed to have taken in the potential positive aspects of policy according to Ashworth, given the all-time highs that the stock market has hit.

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"The markets have convinced themselves that there is a major fiscal stimulus coming early next year, that a roll-back of regulation will boost the financial sector and that Trump will take a much softer line on trade than some of his inflammatory rhetoric earlier this year would have suggested," wrote the economist.

While Ashworth thinks that stimulus and a regulation rollback are probably coming, he is not convinced on the trade aspect. The ultimate outcomes of the policies are also up for debate, according to the economist.

Take, for instance, the $550 billion fiscal stimulus plan from Trump. Ashworth notes that an expansionary fiscal attitude could be a positive for economic growth, but there are some drawbacks as well.

"Our view is that, in an economy approaching full employment, the fiscal stimulus will boost inflation as much as real economic growth. With construction sector wage growth already accelerating, public sector infrastructure projects could turn out to be a particularly problematic inflationary source," said Ashworth.

He also noted that the construction sector is already seeing increased labor costs due to a lack of workers, so the fiscal stimulus and Trump's hard line immigration policies could drive up construction costs significantly.

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On trade, Ashworth imagined a "Good Trump" scenario in which there is a small change to rules with China and Mexico that Trump can point to as a victory, but would not change the relationship too much. There is also a "Bad Trump" scenario as well.

"Trade protectionism is bad economics, but it is clearly good politics," said Ashworth.

"There is a downside scenario in which, struggling with a still misfiring economy, plummeting approval ratings, and perhaps even a dysfunctional relationship with Congress, Trump might try to deflect attention from those troubles by switching the blame to foreigners and their 'exploitative' trade policies."

This could lead to a trade war and significant negative economic shocks, according to the note.

Thus, there is little known about how the economy under Trump will play out, only ¯\_(ツ)_/¯.

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