Global Trade under Obama

With Barack Obama becoming the new Commander in Chief what effect will his policies have on the economy and more importantly your stock portfolio. The two days following the election Wall Street experienced its worst two day drop in history losing 929.49 points or 9.6%. Not a great start for the Obama Administration, though technically he was not inaugurated so blame still falls on Bush. However, is it possible for Obama to administer policies to stimulate the economy without always sending out a blank check out. As a result during this week I will write a series of seven articles each explaining what effect Obama will have on the following topics: Free Trade, Energy, Government Spending & Taxes, Technology, Health Care, Defense and the U.S. Economy in general. When it comes to Free Trade the U.S. needs to benefit from the Globalization of the World Economy. During Obama’s four years in office Foreign Trade will slow down due to several reasons. One Obama opposes CAFTA and it is very doubtful that he acts on his word to rewrite NAFTA. Overall his administration will not take any signifcant steps to change global trade. The more realisitc option is what Morgan Stanley reported which says the emphasis in this area will come from the enforcement of existing agreements. One measure that Obama could facet is elimaniting all tax breaks for companies that send jobs overseas. With a substantially high current Unemployment rate this could stimulate the interest in companies hiring workers back home instead of outsourcing. This measure would analyze certain companies especially the Financial Services and Informtion Technology industries that are highly active in outsourcing. Companies that would feel the impact are JPMorgan Chase (JPM), General Electric (GE), American Express (AXP), IBM (IBM), and Hewlett-Packard (HPQ). Currently companies such as Garmin (GRMN) and Marvell Technology (MRVL) are headquarter outside of the U.S. for tax purposes. This is something Obama frowns upon and is determined to change. The Patriot Employer Act of 2007, which was introduced by Obama, would make thee companies ineligible for a tax credit equal to 1% of taxable income, which would give “Patriot Employers” a boost in profit and cash-flow margins. That financial gain would put pressure on valuations of outsourcing companies and in return bring more jobs home. Overall trade itself won’t trade much during the Obama administration however we could see a decrease in outsourcing which in return could help the current unemployment epidemic.

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