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Brexit & Trump = Supply-Side Revolution?

We are seeing an unprecedented change in how business might be undertaken in the 21st century. The vote by the UK to leave the EU (Brexit) and the election of Donald Trump to the US White House have the potential to create a Supply-Side Revolution.

What is a Supply-Side Revolution?

There is an argument that says if you live long enough, you will see most things are not new in business. Back in the 1970s there was an economic theory first attributed to Herbert Stein called supply-side economics. In essence, supply side economics argues economic growth can be most effective by investing in capital and by lowering barriers on the production of goods and services.

According to supply-side economics, consumers will then benefit from a greater supply of goods and services at lower prices; furthermore, the investment and expansion of businesses will increase the demand for employees and therefore create jobs. Typical policy recommendations of supply-side economists are lower marginal tax rates and less government regulation.

Brexit

The vote to leave the EU provides the UK with an opportunity to break free from the governmental regulations stipulated by the EU, which for many are viewed as a barrier to business.

  • Supporters of Brexit believe Its the high degree of “red tape” being mandated out of the EU that is becoming a burden for many businesses, impacting many areas of industry from Finance to Farming to Manufacturing.
  • Critics of Brexit state the UK will still have to abide by many of the EU regulations in order to undertake EU business, yet as the EU sells more goods to the UK that it purchases from the UK it may provide an interesting situation of who dictates to whom.

Though we don’t know what a world post Brexit looks like, it provides an opportunity for the UK to reduce governmental regulations associated with international trade, thereby opening the doors to new trade and markets.

President Trump

Trump is destined to be the USA 45th President. During Trumps campaign he made the statement that under his leadership he will reduce Capital Gains Tax in order to encourage US organisations to bring profits back into the US economy.

  • Critics of Trump say reducing Capital Gains is nothing more than increasing the profits of organizations, to the detriment of the governments revenue.
  • Supporters believe it provides the right encouragement for USA businesses to bring profits back into the country, thereby stimulating economic growth for the USA

Capital Gains is a balancing act between providing the right level of encouragement for businesses, whilst ensuring the state benefits at an appropriate level. If Trump is destined to strike the right balance is yet to be identified but the approach may offer an opportunity for the USA to stimulate its economy.

The future

Predicting what the future holds for the USA and the UK is nothing more than pure speculation. Brexit has yet to be negotiated and Trump is yet to be sworn into the White House and gain the support of The Senate and Congress.

Yet for those who are not within these two countries it is an opportunity to sit on the side and watch one of the biggest economic changes (some may even say gambles) in modern history.

If the principle of the supply-side revolution is believed then both the UK and the USA may be about to embark on one of the greatest economic growths seen in modern times, only time will tell !!

 

Both the UK and the USA may be about to embark on one of the greatest economic growths seen in modern times

 

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Oct 20 2016

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