If a year is a long time in politics, a four-year term of presidential office is very long indeed. Long enough, you might say, to set a country either on the road to triumph or to lasting disaster. And although I’ll try to be as kind as I can to the incoming President Elect, Donald Trump, who takes over the keys to the White House on 20th January, I’ll also take the liberty of siding with the sceptics who don’t see very much to celebrate.
Ahead of Mr Trump’s inauguration, the overwhelming professional view coming in through my email box has been that, although the new man’s fiscal stimulus seems likely to deliver a short-term sugar rush to the US economy, it’s likely to fizzle out by the end of this year – perhaps because of inherent shortcomings, or perhaps because the personal behaviour of the new president alienates the international community in ways that militate against new investment.
The dollar bulls have had a good time of it during the last three months – partly because Trump favours a higher lending rate which will boost the greenback, and partly because Wall Street is confident that an uncertain and unstable world will come flocking toward the safe haven of US investments. The doubters say that that’s a high-risk gamble: what if it goes radically the other way?
The sceptic’s tale
We don’t have any more crystal balls than anybody else. All we can say, by way of hard factual information, is that Donald Trump has made no secret of his loathing of ‘the established way of doing things’. And his amateurish attempts to subvert the diplomatic process – firstly by cosying up to Taiwan in the teeth of China, and then by trying to foist the former UKIP leader Nigel Farage onto Theresa May as British ambassador to Washington – have given us no reason to think that he will go soft on his iconoclastic promises.
Then again, The Donald can point toward a ghastly year coming up for the rival Eurozone, and a none-too-clever prospect for stagnant Japan. The Chinese Communist Party congress in the autumn comes at a time when President Xi Jinping is stamping his political authority in some quite unsubtle ways. If you’re looking for a better hole than America to tip your money into this year, you might be a long time looking.
The thing that worries me is that US stock valuations are appallingly high at the moment, and that it’s going to take a radical upturn in corporate profits to justify them going any higher. The cyclically adjusted p/e ratio for the S&P 500 was heading for 28.5 in early January – the highest level since 2002 and easily 50% higher than its long-term average. There’s a chance that Trump’s policy plans can boost American businesses’ profitability to the sort of levels that support these numbers, but we haven’t seen any details yet.
The case for the defence
By way of balance, I’ll add that there’s every chance that the sceptics are wrong, and that protectionism, huge borrowing and a regression toward antiquated smokestack industries might indeed propel the United State to the top of the world’s productivity league.
It would be churlish of us to forget that spending $1 trillion on your national infrastructure isn’t so very different from the path adopted in the 1930s to get America out of the Great Depression. The trickle-down jobs and wealth effect has been proven to work, while also loosening up social rigidities and giving people a shared sense of purpose and belonging.
It would also be negligent to omit the fact that Ronald Reagan’s protectionist era in the early 1980s was also a winner – although, in fairness, his punitive tariffs and quotas against America’s imports of Japanese cars, motorbikes and technology were designed with a very short intended life span, and with the specific purpose of giving Detroit a time-limited window in which to make it produce efficient, reliable cars instead of the clumsy gas-guzzlers of the day. The rust belt’s industries, by comparison, are not so much being updated as re-opened. Well, that’s the way Trump tells it anyway. We ought to know more once the plans acquire some proper detail.
Overall, the point seems fair – spending money on job creation is a fine and well-proven way to get an economy moving. We’ll also add, in fairness, that not all of Trump’s trillion dollars for the transport infrastructure will be coming from the federal government – he’s intimated that he’ll be setting up schemes and incentives for private sector involvement which won’t tax the taxpayers beyond endurance.
Sticks and carrots
Speaking of taxpayers, we haven’t heard very much detail from the new president about how tax reforms will impact on the ordinary Joe. We know that Trump plans to cut the corporate income tax rate to 15% – a reduction of more than half, according to some estimates – and that that rate should also become available to the half of all US businesses that are not in corporate form. (i.e. mainly smaller businesses and partnerships.)
Trump also intends to simplify personal taxation with personal brackets of 12%, 25% and 33%- which would represent a cut for those in the top band, but a potential rise for some middle-earners because the high rate would start at a relatively low level. And, as has been widely touted, he aims to repeal the estate tax in a way that would particularly benefit those with assets of perhaps $10 million upwards. Not a policy that will go down well with Congressional Republicans, one feels, but let’s await the details.
And then there are the penalties. 35% and 45% import levies on all products bought from Mexico and China respectively. Huge tax fines for any company that offshores any new activity and then hopes to sell those products back into the USA. Well, that leaves a lot of questions open. What of a company that’s already manufacturing abroad – will it be caught up as well?
“The US is going to substantially reduce taxes and regulations on businesses, but any business that leaves our country for another country, fires its employees, builds a new factory or plant in the other country, and thinks it will sell its product back into the US without retribution or consequence, is WRONG! There will be a tax on our soon to be strong border of 35% for these companies wanting to sell their product…back across the border.”
Donald Trump, Twitter
We don’t know. What we do know is that raising the prices of Chinese and Mexican goods through punitive tariffs is certain to hit the poorest who most depend on them. What we don’t know is whether The Donald can hold onto their loyalty once that becomes clear?
We’ve mentioned the fact that Trump’s erratic, provocative, aggressive style is an entirely conscious choice, and one which is already raising uncertain eyebrows on the international circuit. Trump’s preference for making grand policy statements on Twitter, apparently on the hoof, is effectively bypassing much of the political and diplomatic protocol which he professes to despise.
So perhaps we shouldn’t be too surprised about that, then. Some of Trump’s iconoclasm hits the spot with an American electorate which does indeed regard the whole political establishment as a rigged system. And yet, his high-profile but often infuriatingly unsubstantiated claims and allegations are raising hackles among his own Republican Party colleagues. And his public bullying of giant companies – Ford, General Motors, Boeing, Lockheed Martin – is unsettling other companies which haven’t been dumped on yet.
Democrat Senator Chuck Schumer, one of the more respected members on the liberal benches (and also a former anti-China campaigner, as it happens) was quick to remind the then incoming president last month that ”Making America Great Again requires more than 140 characters per issue”. Indeed, we might add, 140 characters aren’t really a place where detailed reasoning – or indeed, any reasoning – can easily be accomplished.
It’s a little hard to know what to say of a president who is certain that global warming is a myth that’s been put about by the Chinese, and that 97% of the world’s environmental scientists are lying on Beijing’s behalf. Or who builds that belief into an affirmed policy of reopening North America’s mothballed coal mines. But that’s the situation we’re looking at, so we need to adapt our ideas accordingly.
Industrial renewal – where’s the beef?
So who are the beneficiaries of Trump’s jobs going to be? With an unemployment rate of less than 5% – far less than in Reagan’s day – it would seem that most of blue-collar America won’t be queuing up for the new jobs in the new factories. Again, that’s a contentious statement, partly because the unemployment is concentrated in particular run-down areas of the north-east, and partly because the unemployment statistics themselves are suspect.
Let’s explain. One of the most puzzling factors of the last decade has been the number of unemployed people who’ve simply signed themselves off the job-seeking registers, so that they’ve ceased to figure on the unemployment statistics at all. Some of these people have exhausted their entitlements to unemployment benefits, which don’t last long compared with our own in the UK. Some have been dragged out of the workforce by drugs or imprisonment, while others have simply switched over to the black economy.
Washington hasn’t generally asked where its vanishing workforces have gone, because it’s been much more convenient to trumpet the falling jobless stats instead. In a country where so many millions of migrant workers are gainfully but ‘invisibly’ employed, it saves a lot of bother if you can focus your propaganda effort on the non-farm payroll statistics where they won’t be likely to appear because their jobs aren’t kosher.
And the new administration?
We have a president whose personal office is being run by Steve Bannon, the ex-head honcho at far-right-wing ‘alternative’ news site Breitbart, which has distributed more anti-Semitic commentary than almost anyone else in recent years. So when his new boss says he’s closer to Jerusalem than Barack Obama, we can only hope that Mr Bannon has had a change of heart.
Relations with Russia are also likely to prove uncertain and hard to predict. On the one hand, the new POTUS says that Vladimir Putin is a friendly, “smart” man who “says nice things about me”, while on the other hand he’s announced a build-up of nuclear arms capacity which is aimed against that same leader’s Russian state. We have support for Russia’s bombing of Syria, which is in support of Syria’s Bashar al-Assad, who aligns with the state of Iran which Donald Trump would love to see crushed. Either the new president’s grasp of political complexity is limited, or else he’s the best Machiavellian operator of the last half-century.
Normally this apparent ignorance wouldn’t matter, because the Sir Humphreys of the civil and diplomatic service would take the brash newcomer aside and put him straight on the finer points of diplomacy which he hadn’t considered up till now. But this is a president who has filled his cabinet with ‘dealmakers’ and financial friends who have little or no political experience between them.
Indeed, that’s his selling point in pushing his reform agenda through. Less obviously promising is the fact that he’s roped in his personal family members as key policy advisers. Hey, Caligula made his horse a consul, too.
But it’ll be the senators of Washington, not Rome, who’ll be left to do any reining in of this wayward emperor. Although a US president is empowered to do a certain amount by decree (as his predecessor did with Obamacare), long term changes of a different sort will require the compliance of a Congressional majority that is far from universally convinced that the party has done the right thing.
At present, the loud disapproval coming in from senior figures like senator John McCain is a problem that could yet cramp Mr Trump’s style. But will he care about the party line? How far, in fact, does he align at all with the Republican Party, which he left in 2009 and then rejoined in 2011?
John Boehner, the former Speaker of the House of Representatives, told Breitbart itself in November that Donald Trump was “not an ideologue”, but also that “he’s barely a Republican.”
And he went on: “He could be barely a Democrat as well. So nobody really knows where he’s going, but he made it clear during the campaign what his issues are.”
So that’s all clear, then.