Bringing back the shine to the rust belt ...
President Elect Trump is making the transition to the White House. Against all the odds, just months ago, the billionaire business man is set to be the most powerful man in the Western world.
Trump has promised to make America great again, to bring the shine back to the rust belt and to bring back manufacturing jobs to the MidWest states of Pennsylvania and Wisconsin.
Trump will put a smile back on the faces of blue collar workers by reversing the tide of economic history, bringing back manufacturing jobs lost to China, the Asian block and Mexico. Or will he?
Trump has promised to deport millions, rip up trade agreements, apply religious tests, build walls and sabotage international efforts to fight climate change, each of which would hurt many people, according to the Wall Street Journal.
Making America Great Again …
We heard a similar theme with the Brexit campaign. Take back control of our borders, make Britain great again and stop sending the mythical £350 million to Brussels each week. No need for a wall, when we have the channel with armed guards in the tunnel. A disregard for the truth and a simple proposition stated with intense frequency the recipe to secure the vote of the common man, it would appear.
In the U.S. the prize is much greater. Trump has promised to build the strongest economy in the world, doubling the growth rate to 4%. To spend $600 billion on infrastructure. $6.6 trillion to be added to national debt. Creating jobs for millions in the process.
The billionaire business man becomes the champion of the blue collar working man. The glitter of Trump wealth has a Peronista charm that has worked before in far off lands but only for so long.
How was it achieved …
How was it achieved? A simple message stated with intense frequency, pandering to prejudice with an ignorant disregard of the facts. A keyword strategy including sexist, racist, misogynist, prejudiced, patronising, partisan, elitist, nationalist, populist, protectionist, isolationist, xenophobia, jingoistic.
A lethal cocktail of non political hatred released from the bottle of bile, now so difficult to contain. How the Mother of exiles must weep.
“Here at our sea-washed, sunset gates shall stand
A mighty woman with a torch, whose flame
Is the imprisoned lightning, and her name
Mother of Exiles …
“Give me your tired, your poor,
Your huddled masses yearning to breathe free,
The wretched refuse of your teeming shore.
Send these, the homeless, tempest-tossed to me,
I lift my lamp beside the golden door!”
Can Trumpeter Economics work? ...
The President Elect offers a brand of “Trumpeter economics” but can it work? The policies cannot reverse the tide of economic history and the wave of internationalism sweeping the globe. The US economy is set to fade in the twilight zone of Chinese economic hegemony. Trump, taking the role of King Canute, will be unable to stem the tide.
According to Zhang Zhozhong Chinese military commentator on Weibo. “The Trump victory marks end of the American era. If he is in office for eight years, he will successfully be the first U.S. president to lead America’s economy from number 1 to Number 2 in the world”.
Will Trump stay in office for eight years? It seems unlikely. An egotistical property driven, trophy hunter, will claim the highest real estate prize in January. The vegetable garden in the grounds of the White House will not survive the early Trump days but then what? Imagine the White House with a Donald Trump makeover? All that White, yearning for a gilded porch and a high rise development to capitalise on the narrow high value footprint.
Can Trump do much harm?
The genius of America’s constitution is to limit the harm one president can do, claims The Economist. We must hope so. According to the Brookings Institute, “There are layers of professional foreign service, intelligence and civil service officers and a web of constitutional and institutional checks and balances that can work to moderate policies that could jeopardise the national interest.” Let’s hope so.
Trump has promised heavy tariffs on goods from China but this is nothing new. Reagan imposed 45% tariffs on Japanese motorcycles in the 1980s. Obama imposed a 35% tariff on tyres on taking office.
We expect some token tariffs to be imposed but overall, trade wars are counter productive. Trade wars cost American jobs. Ford, Apple and Boeing will be put under pressure to make more products at home but according to the Peterson Institute 1.5m to 5.0 million jobs could be put at risk in the U.S.A. if real trade wars ensue.
Policy change is already taking place …
Change is already taking place. What is said in the locker room and on the campaign trail should stay in the locker room and on the campaign trail. Trump is engaged in Orwellian conversion.
In a White House version of Animal Farm, they will look from Campaigner to President as from pig to man Within months it will be impossible to say, which was which, much of the vulgar campaign rhetoric will have disappeared as the Oval Office surrounds and isolates.
Concessions are already on the way for Obamacare, a softer line on trade is set to follow. The interdependence of trade flows will be fully explained to the Trump team.
So what of trade agreements ...
The Trump camp is opposed to Trans Pacific Partnership and promises a review of NAFTA affecting Canada and Mexico. Prospects for an EU deal remote, the Transatlantic Trade and Investment Partnership is under review. “If trade partners are benefiting, the US must be losing out” the Trump view. It is misguided. What then will become of the much needed Foreign Direct Investment, especially from China, on which the U.S will depend.
Trump may claim, NAFTA is the worst trade deal in history. For Mexico 80% of trade goes to the U.S. and Canada. For Canada, 75% of exports are destined for the U.S. A 35% tariff would inhibit trade and increase the cost of living for U.S citizens. The sabre rattling will soften to yield a common sense deal. Trump just loves a great deal!
And what of Foreign Policy ...
In foreign policy, we are promised a rapprochement with Russia. A challenge to the deal with Iran on the nuclear programme. U.S. may not defend Japan and South Korea against an attack from North Korea, encouraging South Korea and Japan to engage in nuclear arms programme.
Trump has threatened NATO. The U.S. is not going to war on behalf of people who do not pay their fair share. Russia is ready and wants to restore full fledged relations with the U.S.
The Duma burst into applause on the news of Trump victory. Annexing Crimea, usurping government in the Ukraine, tensions in the Baltic states have risen.
Suggestions by Newt Gingrich that Estonia is just a suburbs of St Petersburg, will not help. The U.S. state department is already making noises to soothe NATO nerves. The EU must make strong noises to defend the frontier states.
The European Perspective …
From a European perspective, the leaders are terrified. Set to face a Constitutional Referendum in Italy, a General Election in Germany and a Presidential Election in France, tough years are in prospect. Brexit was a shock. The Trump victory a second warning. The Italian five star movement wants a referendum on the Euro. Ms Le Pen in France wants a referendum on Frexit. What then of the Euro and the E.U.?
On Climate Change ...
Trump has claimed global warming is a hoax. A lie perpetrated by the Chinese to render U.S. manufacturing uncompetitive and to undermine the Oil, Coal and Gas industry. China has urged the U.S. government to comply with the Paris accord for the benefit of mankind. The Chinese are faced with the greatest challenge to convert from dirty energy and the largest world share of humanity to protect in the process.
Trump has promised to cut taxes and increase spending. Reduce the tax burden with 15% corporation tax rate with personal rates down. The new administration will repatriate corporate earnings tax trapped overseas. Increased spending on infrastructure projects will follow, using American Steel one would hope. It is a huge bill which could cost $7 trillion over 10 years.
Markets have reacted with a surge in equity prices and bond yields. Trump is not a fan of Janet Yellen, a self professed Clinton supporter. The head of the Fed will serve her current term ending in 2018. Trump is not a fan of QE nor of low base rates. He is sure to get his way, rates will rise next month.
The U.S is set on a path of inflationary expansion of tax cuts and spending which will lead to higher base rates and bond yields. Government borrowing and the trade deficit will increase in the process.
The U.S. will become the engine of inflation and growth in the world economy. Making America great again, for a few years at least. Four more years? Unlikely! No shine for the rustbelt, no smiles for the sunbelt. The U.K. may benefit nevertheless from export expansion and a sterling rally. As for the U.S.A. ...
God Bless America and the President Elect.
So what happened to Markets?
Markets, were up post the U.S. election - the Dow closed at 18,817 from 17,974. The FTSE closed at 6,730 from 6,693.
Sterling was up against the Dollar to $1.260 from $1.250 and up against the Euro to €1.160 from €1.124. The Euro slipped against the Dollar to 1.085 from 1.112.
Oil Price Brent Crude closed at $44.70 from $45.45 The average price in November last year was $44.27.
UK Gilts - yields moved up. UK Ten year gilt yields closed at 1.36 from 1.15. US Treasury yields moved to 2.14 from 1.74. Gold closed at $1,222 from $1,296.
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The material is based upon information which we consider to be reliable but we do not represent that it is accurate or complete and it should not be relied upon as such. We accept no liability for errors, or omissions of opinion or fact. In particular, no reliance should be placed on the comments on trends in financial markets. The presentation should not be construed as the giving of investment advice.