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Trump Towers – Michael Wilson assesses what future policy might look like under Trump’s Presidency

It was definitely not economics that drove the US election campaign, says Editor-in-Chief, Michael Wilson, but knockabout farce and anarchy.  But now, with Trump’s seismic election victory, what clues can we pick up about his future policy?

So the die is cast. Earlier this morning I for one had a déjà vu moment, feeling much the same as I did back on a summer night in June, as we reeled in response to the Brexit referendum. However, you’ll probably be pleased to hear that our remit at IFA Magazine is not to debate the politics here. There is more than enough commentary on this coming at us from every angle. The fact is that the American people have voted, and we now have to try and assess what the Trump victory might mean for the global economy. Throughout his campaign, there has been really quite a lot of confusion about where Donald Trump stands on the matter of economics. And its been surprising that, amid all the blustering, name-calling and downright threatening behaviour that has characterised this most degraded of presidential elections, the subject of economic policy has hardly surfaced at all.

And that’s a problem for a bemused and worried world as we consider the implications of today’s landmark result, which will put Trump in the White House for four years.

Denial of service attack

It’s not that Donald J Trump plainly doesn’t have an economic policy, it’s that throughout the campaign he has brilliantly shifted the focus the debate away from substantive issues like economics and international relations, to the extent where Mrs Clinton literally hasn’t managed to find the platform time to expound it.

It’s a technique that Russian hackers might have been proud of. If you batter your target with enough random garbage – and Trump’s unending tide of bizarre falsehoods and abuse can hardly be described in any other way – then you can shut them up for long enough to wound them. Sound familiar?

Following his victory this morning, he tells us that he does indeed have a great economic plan to double growth. We’ll await the details of that.

Trump – the disruptive economic model

We’ve been hearing quite a lot about so-called disruptive models in the last couple of years. Companies like Uber or AirBnB or challenger banks are shaking up the stuffy old mould and making us all think again about the businesses we thought we knew. Well, you’re going to hate this analogy, but Donald Trump is the very epitome of the disruptive economic model.

Cast aside your preconceptions about how fuddy-duddy old federal budgets should be made to balance, and give a warm welcome to the concept that foreign debts can be run up and then quantitatively eased away, or simply written off if that’s too difficult.

Open your mind to the idea that you can pay America’s workers more while still reducing the overall cost of labour for employers. It’s easier than you think.  Well, the first part is, anyway. All you have to do is cut corporation taxes, personal taxes and (critically) inheritance taxes, and you’ll really believe a man can fly. Why, you can pay for the fiscal gap by levying a 35% tax on Mexican imports, and a 45% duty on Chinese goods.

Better still, deport all the pesky Latinos who are either sponging off the US state or else working for far too little money, so that …. no hang on, that won’t bring down employment costs at all. Ermmm, but it might create new job openings for the downtrodden white blue collar class, who surely can’t wait to get back to the romantic grime of Detroit’s derelict car factories or the pure air of the midwest’s coal mines. That’s how you make America great again. Apparently.

Trump’s economic illiteracy is beyond simply staggering. But that’s not the point, because The Donald has not been running on policy at all. He’s been running on blind, lashing-out anger. And that’s the way his supporters like it. So much in fact, that Americans have voted in their tens of millions to install him as their next president.

Donald Trump is the 21st century’s answer to Mr Punch. He bullies, he threatens, he shouts, he degrades women, and he’s ready with the gallows (and worse) for anyone he can’t get on with. He’ll have to purge the judiciary before the hangings can start, of course, but that’s not going to be too difficult. He’s a delight for anyone who can’t tell real life from reality TV, but who likes a bit of violence. Just don’t ask him where his sausages have been.

But then, this has been no ordinary election, and it has been fought on Trump’s chosen territory and not Hillary’s – out there in the media.

Debt, and its many uses

So, can Trump get away with his twin goals of boosting the federal debt pile and making the dollar strong enough to demonstrate America’s might to the world?  Well yes, say some theorists, he could. It worked for the US government after the Vietnam war, when a vast quantity of debt was turned into paper that the world promptly fell over itself to buy – thus driving up demand for the dollar in its post-gold-standard guise (1971) and cementing its authority as the world’s favoured currency of last resort.

It worked for Ronald Reagan, another unlikely Keynesian, who issued colossal volumes of debt in the early 1980s as he battled to keep America’s smokestack industries running in the face of a recession and a sharply improving Japanese trade attack. Reagan opted for debt rather than higher taxes, which looked like a huge gamble at the time, but it paid off handsomely. He did, however, have the good sense, once the economy was back on course, to raise taxes and restore the balance. Something that few of his successors have ever had the courage to do.

The outside world

We may as well start by restating the obvious. Donald Trump has ditched the Republican Party’s decades-long commitment to international free trade, in favour of punitive import tariffs against those states which he thinks are manipulating their export economies to the detriment of small-town, blue-collar America. In China’s case, it’s also a visceral reaction to his claim that China has cheated its way toward owning a huge chunk of America’s bond debt. Something that he believes should never have happened, although it’s not clear how anybody could have stopped it in a free market.

We already know what Trump thinks of Mexico’s export surplus, but a bigger surprise for Europeans is his hostility to Canadians.

Taxes

It’s rather hard to pin Mr Trump down to any serious policies on tax, except that he wants to cut taxes generally. His September 2016 programme envisages a continuation of the 2015 schedule that would implement a 15% business tax, a 33% personal tax ceiling (compared with the current 39.6%), and also – for the first time – the complete repeal of inheritance taxes. A move which, as his adversaries comment, would benefit the billionaires rather more than the blue-collar masses who have no savings.

Could that be afforded? Well, the Wall Street Journal calculated last autumn that Trump’s earlier plans would have broadly tripled the effect of the GW Bush tax cuts of 2001 and 2003. Trump’s new plan, the WSJ says, would reduce revenue by an extra $4.4 to $5.9 trillion over a decade, although there might be some extra revenue from economic growth. He promising $1 trillion of infrastructure, a commitment which he reinforced in his victory speech this morning, but it hasn’t been costed at all.

One thing that both Trump and Clinton agreed on was that an onslaught is required against large companies that try to move their headquarters abroad for tax purposes. Although how that will go down in Europe remains to be seen.

The Trump grudge against Wall Street

Trump’s deep antipathy toward the US financial markets goes a long way toward explaining why he hates the city slickers with such a vengeance. It’s all a little odd since it was the senior bankers who bailed out Trump’s crashed casino, with considerable ingenuity, after his first corporate bankruptcy.

But there we are. What annoys Trump is that the US markets have risen by more than 230% since the 2008 lows – thanks, he says, to an absurdly low interest rate, and also to the release of $3.8 trillion of quantitative easing that has put the country into hock. The market’s “all a big bubble”, he told Fox News recently, and he forecasts “something that’s not pretty” when rates rise again. Well, markets around the world have already taken a dive, with the US markets expected to follow suit later today when they open.

He doesn’t favour a rapid rise in rates, he says –  but maybe he’ll think differently now he’s won the election? – but he believes that Fed Chairman Janet Yellen has been nobbled by the Democrats to sustain the bubble for a while, and he aims to replace her with a true Republican with a more hawkish outlook before long.

The certainty of uncertainty

Which leads us, finally, to the impact that this highly engrossing Punch and Judy show is having on today’s financial markets around the world.  On the run up to the election, the markets have been doing well to keep their blood pressure down and their worries muted. Now it’s all in the melting pot it seems that uncertainty will be the only certainty for a while.

Ken Fisher, the perma-bull head of Fisher Investments, has never been one to fret about such indeterminacies. All new governments bring uncertainty and radicalism, he says, and they always end up ploughing the same furrow as all their antecedents. Why worry? Be happy. We’ll do our best, Ken.

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