Commentary: Time to make a deal after the US presidential election

Joseph Chang | ICIS

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After all the hard campaigning, billions of dollars in political advertising, the rhetoric, the debates and posturing, the US is back to square one. An Obama victory in the presidential election over Republican challenger Mitt Romney keeps a Democrat in the Oval Office. This, coupled with a Democratic Senate and a Republican House of Representatives, means the political landscape essentially has remained the same.

Now it’s on to the tough challenges, which have not gone anywhere. The number-one priority is dealing with the US fiscal cliff. Around $600bn (€471m) in automatic spending cuts and higher taxes are set to kick in on January 1, 2013, if a budget deal cannot be reached.

Economists estimate this austerity shock could wipe around four percentage points off US GDP, plunging the country into recession. The implications for the global chemical sector are obvious, as demand in the world’s largest economy would indeed fall off the cliff.

US stocks plunged by more than 2.5% on 7 November, the day after the election. Adding to the worries were comments by European Central Bank (ECB) chief Mario Draghi that Germany, which had been “largely insulated” from difficulties in the eurozone, is now starting to feel the effects of the downturn.

While this is hardly news, Draghi’s assessment further weighed on sentiment.

One positive aspect of the end of the US election is that the global chemical mergers and acquisitions (M&A) market could stand to benefit – but only if the fiscal cliff issue is resolved.
“We expect M&A activity to increase next year, particularly in the US, where any uncertainty associated with the election and associated changes in taxation are removed from the equation,” said Telly Zachariades, partner at global investment bank The Valence Group.

The flow of deals between the US and China may also be influenced by an Obama victory, said Peter Hall, also a partner at Valence, based in the UK.
“Romney has been very vocal in describing China as a currency manipulator and said he would take a tough stance on China’s commercial practices. This has not gone unnoticed by the Chinese CEOs and business owners that we deal with,” he said.
“An Obama win is likely to be positive for M&A flows between the US and China, whereas a Romney win could have led to increased economic tension between the two countries, at least in the short term.”