Brexit holds limited clues for the US political outlook – Goldman Sachs

Research Team at Goldman Sachs, suggests that the Brexit vote is a reminder of two important aspects of the US political outlook.

Key Quotes

“First, elections are hard to predict; when polls are wrong, most other predictions will be, too. Second, political populism has been on the upswing and the range of outcomes in the US election seems wider than usual this November.

Despite the similarities between the UK’s EU referendum and the current presidential campaign, there are also important differences. First, polling in the US is far from perfect but it does not appear to have as many problems as it had in the UK even before last week’s vote. Second, a presidential election is easier to predict than a referendum, in light of somewhat more predictable turnout and an electorate that follows partisan patterns.

Public support for liberalized international trade and immigration policies may be greater than recent campaign rhetoric might suggest. Republican voters currently support trade agreements less than Democrats, but this may be a temporary phenomenon. Support for immigration has actually increased by many measures, but this has occurred largely among Democrats, with increased polarization as a result.

Prediction markets current imply a divided government under a Democratic White House as the most likely outcome, and this is our expectation as well. That said, the presence of third-party candidates appears to be reducing Secretary Clinton’s lead slightly, and polling in key swing states indicates a closer race than the more frequent national polls do.

The current political environment suggests at least three things about the postelection policy outlook. First, trade policy is likely to be on hold for a while. Second, immigration reform is likely to return to the agenda in 2017, regardless of the election result. Third, while both parties have focused on corporate tax reform, either as an end in itself or a means to finance new spending, the upswing in populist sentiment raises questions about this strategy.”