Impact of Election of Donald Trump on the National Australian Bank

Question: Discuss about the Economic impact of Election of Donald Trump on the National Australian Bank. Answer: Introduction Election of Donald Trump is important to global economy as analysts think that election is US president election is likely to affect the growth of many economy and corporate profit. There are different views regarding positive and negative effect on the economies. Trans- Altantic Trade and Investment Partnership concept of Hilary Clinton is strictly opposed by Donald Trump. As US is major trade partner of many economies, restrictive trading policies may reduce the trade volume and henceeconomic growth of many companies. Anti globalisation thought of Donald Trump is major concern for the economy of Australia as this policy can restricts capital flow between two nations and financial trade (dfat.gov.au 2017). National Australia Bank is one among the four largest financial institutes of Australia in terms of market capitalisation. .This bank has expanded since 1982 through merger and acquisition several times. This bank has US subsidiary as Great Western Bank, which is listed in New York Stock Exchange. Banking business and whole division of this company in USA has 3% share of total revenue of NAB (australiancentre.com.au 2015). Anti globalisation decision of Trump may hamper the domestic economy, which is discussed in the later section of this paper. NAB has activities in financial service and product transaction in the international market. The decision against Trans Atlantic trade and Investment may hamper financial trading among nations, revenues of the bank and hence othereconomic contributions of the bank in terms of capital mobility, currency management and employment. This paper analyses contributions of NAB in the Australian economy and possible effects of US president elections o n the business of this financial institutions. Impact on domestic economy in terms of growth, employability, interest rate is also included in the analysis. Knowledge Australian economy is related to US economy through commodity and financial trade. Both USA and Australian investors invest in the cross border economy. National Australian Bank is engaged in foreign currency trading with US investors. US economy is related with Australia through several bilateral and multilateral treaties and regional alliances such as World Trade Organisation, APEC, Trans Pacific Partnership and other Free Trade Agreement. Market of these countries engaged in regional alliances is open to the member countries for trading with lower cost. Trump is always against the view of Hilary Clinton regarding Trans-Pacific trade and Trans- Atlantic Trade and Investment Partnership (Wright 2016). Trump wants to restrict globalisation in US economy by restricting trade and investment with global economies. National Australia Bank has business and subsidiary in US economy. Any restriction in foreign trade may create negative impact on the business of NAB. As this bank is listed i n the New York Stock exchange, any policy change regarding financial market would have negative impact on the Australian financial market (nationalaustraliabank.com 2017). Revenue of the bank can be affected. The analysis has been broken into three parts such as effect on international trade and finance, interest rate, business cycle andeconomic growth. USA is a global power in terms of finance, trade, employment and most of the economies are connected with this economy through trade. In this framework protectionism policy can impact Australian financial market and trade. Through protectionism and anti globalisation policy US economy would be likely to be more inward oriented with restricted trade volume (Van der Ploeg 2017). US economy is a primary supplier of US dollar. In the face of anti globalisation policy, currency trading between Australia and US economy would be affected. National Australia Bank has relationship banking in US to provide service regarding complex financial issues, capital structuring, financial strategy, risk management, debt advisory, credit rating and transaction execution. Financial market products offered by NAB are foreign exchange, term, deposits, interest rate, and property equity. Although a group of market analysts believes that impact of Trump election would not have great impact on Australian fina ncial market as internal financial market is strong due to tight monetary policy by central bank (Pettifor 2017). According to modern trade theory of Ohlin, international trade takes place between countries due to differences in comparative cost and incomplete specialisation. Differences in factor endowment are another reason of international trade. However, gains from trade depend on the terms of trade and elasticity of demand in both countries. Country with more elastic demand for import and less elastic demand for export has greater share in trade gain. If international trade takes place between Australia and US, US export their product using abundant factor in production and imports the product that uses scarce factor. In this way both can gains from trade. As seen in the figure 1, PPF that has major share of good Y is PPF country 1 and PPF towards X axis is the PPF of country 2. Both the countries specialise and exports goods where it has comparative advantage. If tastes and needs of consumers of two countries are same, a common indifference curve is tangent with both PPF as shown in figure 1. In the view of Viner (2016), both countries have production and consumption gain at least cost although gain may not be the same. Another argued that if free trade is restricted between US and Australia, US market may not be affected much due to its size and domestic resources. If US economy reduces economic and financial trade with Australia, investors will be affected. There are many US investors invested in NAB. Decision of Trump may lead to withdraw of funds invested with NAB and the Australian economy may envisage capital outflow from the economy (Peters 2017). Interest rate is macroeconomic variable that affects the foreign exchange and financial market. Interest rate change affects the corporate profit indirectly. Interest rate is important to the traders as the rate of return is the matter of concern. Profit rate is expected to be higher when greater interest is achieved on the currency, where money has been invested. McGann (2016) argued that investment in currency is always risky as currency value fluctuates and therefore can reduce the rate of return on investment. As financial market of US is volatile in nature, restriction in trade can be beneficial for NAB and for Australian economy. Monetary policy and rate of interest are controlled by the Reserve Bank of Australia. RBA generally control financial market through unique cash rate. Hike in interest rate in Australian economy is likely to attract US investors for the desire of higher rate of return (Gray 2016). Therefore, there is a chance of capital inflows in the Australian econom y. Therefore, monetary policy can affect the financial trading and investment relation between two countries. If capital movement is restricted due to the policy of anti globalisation, Australian economy may have reduced capital inflow in financial sector and further in the domestic market to restrict capital mobility. Election of Donald Trump may affect economic growth through consumer spending, inflation and housing market. Circular flow of economy model depicts that all the economic agent are interrelated to each other such as consumer, producers, resource market, banking industry and government (Christophers 2016). When there are capital inflows, the positive effect spills over the different sectors of the domestic economy. Financial service industry in Australia employs around 413000 people in Australia. This industry holds 9% share of overall service sector output in the economy (australiancentre.com.au 2015). Financial sector including NAB is greater sector to generate employment in the economy along with its expansion in both domestic and international market. As seen in figure 2, employment in financial sector has increased overtime, although share of employment has decreased in recent years compared to other industry However, productivity of workers in this sector has increased to contribute gross value added of the economy. As financial service employment is mainly concentrated in the capital cities of Australia, there is immense scope of expansion of this sector towards sub urban or rural areas to create employment opportunity and to integrate major people financially. In the face of restricted trade with US, a part of revenue of NAB may be hampered and that may affect in the labour market in the form of wage rate of the employees. Net operating profits are paid to the employees after paying shareholders and retained earnings. Reduction in NAB profit may create pressure on the domestic economy. GDP = C + I + G + (N- X), where C is the consumption, I is investment, G is government expenditure and (N-X) is net export. When output is reduced, that put negative effect on the income, consumption demand (Pettifor 2017). As consumption demand drops due to drop in wage, national output shrinks in the long run. Savings decreases in short term, which further hampers internal capital mobility. Hence, growth rate of Australia may fall with the fall of output. Therefore, uncertainty in the international trade may hamper financial integration, capital flows. Hence, above discussion can be concluded as that trump election may create negative effect on NAB and the economy. If rise in interest rate attracts foreign investors, capital inflows take place in Australia through NAB (Gray 2016). Uncertainty in financial market of US and Australia and other trade relation may slow down economic growth of Australia. References australiancentre.com.au 2015. 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Available athttps://www.nationalaustraliabank.com/nabglobal/en/banking/services [accessed on 05.25.2017] Peters, M.A., 2017. The end of neoliberal globalisation and the rise of authoritarian populism. Pettifor, A., 2017. Causes and consequences of President Donald Trump.real-worldeconomics review, p.44. Van der Ploeg, F., 2017. Political economy of the West: Populists versus policy wonks. Viner, J., 2016.Studies in the theory of international trade. Routledge. Wright, T., 2016. Part three:as risky as terrorism. Either president will tread a different path to recession. Available at: https://www.smh.com.au/interactive/2016/us-election-impact-australia/economy [accessed on 05.25.2017]