Farmlytics

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US Presidential Election

The election of Donald Trump as the 45th US President sent shock-waves through financial markets – the Mexican peso, along with stocks in Asia and emerging markets were initially hit hard, however have recovered to some extent as the real consequences of his victory are assessed. An outsider to the political establishment with no track record in government, his election has sent shock waves around the World.  It is important to remember that although the Republican party now controls both houses of Congress, this does not mean Mr Trump will get a free hand when it comes to domestic policy, and it is by no means certain that promises made on the campaign trail will come to pass.

Much of Mr Trumps rhetoric during the campaign was protectionist in nature and included threats to tear up free trade agreements such as NAFTA (North American Free Trade Agreement) and the TPP (Trans-pacific Partnership) along with imposing tariffs on imports from China and Mexico. Since NAFTA came into force in 1994, between 1992 and 2007 US agricultural exports to Mexico and Canada grew by 156%. An end to the NAFTA agreement will have serious consequences for this trade. Although the TPP is now under pressure, there may be some scope for re-negotiation, however the TTIP (Trans-Atlantic Trade and Investment Partnership is now unlikely to go through. Mr Trump has previously spoke in favour of Brexit, but it remains to be seen whether this support will lead to any free trade deal with the UK.  A wider impact could be that opposition to free trade strengthens – especially given the growth of populist movements within the EU.

Much of Mr Trumps support has come from Rural America, he is likely to want to continue supporting agriculture. He is reportedly in favour of ethanol production, and moves to support bio-fuels will have impacts on the markets for feed-stocks and feed crop prices. During the campaign he promised to abolish the EPA (Environmental Protection Agency), however many feel he us unlikely to do this in office, however many farmers hope he will cut back on regulation.

Other farmers are concerned about the impact his policies will have on  migrant labour on which US agriculture is heavily dependent. Roughly 1.4 million undocumented immigrants work on U.S. farms each year, or about 60 percent of the agricultural work force. A clampdown on migrant labour could have a significant impact on the fruit and vegetable sector in particular, as it relies on migrants to undertake manual work which most Americans will not do.  Rising labour costs may lead to increased investment in new technologies to replace labour on farms.

These policies if carried through, they could have profound impacts on agricultural markets, and many are fearing the unpredictability in trade policy that his presidency now creates. The overall impact of his policies on economic growth, and therefore the demand for food and agricultural products are still not clear. However as the key policy maker for the Worlds largest economy, his decisions could have a global impact.

 

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