One year of Trumponomics

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One year of Trumponomics
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Exactly one year after Mr Trump’s election as 45th President of the United States, what evidence is there that Trumponomics will work?

Happy anniversary!

This first real week of autumn has been one of anniversaries.

First, we marked 500 years since an academic friar by the name of Martin Luther nailed his Ninety-five Theses to the door of All Saints’ Church in Wittenberg. Amongst other questions, Luther asked: “Why does the Pope, whose wealth today is greater than the wealth of the richest Crassus, build the basilica of Saint Peter with the money of poor believers rather than with his own money?” This extraordinary document triggered a series of momentous events that we now call the Reformation – which changed us utterly. Mostly, in my view, for the better.

Then, exactly one hundred years ago, the Bolsheviks, under the leadership of Lenin and Trotsky seized power from the fragile Provisional Government of Prince Kerensky in Saint Petersburg (then called Petrograd). This was in no way a popular revolution driven by an uprising of the masses. It was rather a putsch carried out by schemers supported by dissident elements within the military who desperately wanted to end the war with Germany. The world is still living with the consequences of this catastrophe.

And exactly one year ago the world’s liberal elites were traumatised by the election of Donald Trump as the 45th President of the United States. As Mr Trump amassed a lead in electoral college votes in the wee hours of that Wednesday morning I wrote a piece for these pages in which I tried to convey the sense of shock reverberating through the established order.

Of course, it is unlikely that Mr Trump will be remembered in the same bracket as the extraordinary historical figures that are Martin Luther and Vladimir Lenin; but it looks likely that his election may be seen by historians as a watershed – regardless of how successful he is.

In the meantime – what has he achieved so far? And will he even last the course?

A brief history of tweets…

We learnt of Mr Trump’s victory early on 09 November 2016, but of course he was only inaugurated as 45th President on 20 January this year. So, as this piece goes live he has had 293 days in power.

What was his programme? He was going to build a wall along the border with Mexico. He was going to renegotiate trade deals that were inimical to America’s interests – especially with the “currency manipulators” – not just China but Germany as well. He would bring outsourced manufacturing jobs back to America. He was going to cut red tape, lower taxes and, most of all, to crank GDP growth up to four percent – a level that America has not enjoyed since the boom of WWII in the early 1940s. And he was going to fix America’s crumbling infrastructure.

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The mood music of his campaign inspired as many as it depressed: America First! Technical translation: economic nationalism in trade and investment policy. But it was not clear to analysts – certainly those of the established commentariat who now came to be called on both sides of the Atlantic as Mainstream Media or MSM – whether all this added up to a coherent economic policy.

The congressional elections on November 2016 also yielded majorities for the Republican Party in Congress. The 435-seat House of Representatives has 240 Republicans, and in the 100-seat Senate the Republicans have 52 seats as compared with 46 Democrats and two independents. Thus, in principle, so long as the Republican Party remained united, the President could get any proposed legislation through Congress. That is not how things have turned out.

The scorecard

There is no question that Mr Trump’s tenure so far has coincided with a period of consumer confidence, low and falling unemployment, low inflation and low borrowing rates. America’s economy is currently growing at a rate of 3 percent – not the 4 percent to which Mr Trump aspires, but faster than Europe or Japan. Against this backdrop, the US markets have reached record highs, with the Dow Jones closing at 23,461 yesterday. Whatever you may think of Mr Trump the man, his confidence and optimism seem to have carried America with him – so far at least.

The key test will be whether Mr Trump’s administration will be able to get the mooted package of tax reforms – including a proposed cut in company profit (corporation) tax from 35 to about 20 percent – through Congress by next spring. Analysts like Goldman Sachs are bullish that lower corporation taxes and lower taxes on blue collar workers could stimulate the economy (and stock market) further. The tax reforms could even reform the behaviour of the tech giants like Apple (NASDAQ:AAPL) who have built up massive cash piles which reside in offshore bank accounts. This money could be re-invested in America.

Whatever you may think of Mr Trump the man, his confidence and optimism seem to have carried America with him – so far at least.

However, it is not clear that any such economic stimulus would be enough to offset tax revenues lost – and thus the prospect of a deepening deficit gives Congress pause. Republicans and Democrats agree that the US tax code is too complex and unnecessarily extensive; but they disagree on how to tackle the deficit. Some Democrats like President Obama’s Treasury Secretary, Jack Lew, emphasise the need to cut spending rather than taxes.

Every administration since that of President Johnson has put forward their major budget proposals within one month of inauguration. Mr Trump’s administration took five months to submit its outline proposals, the fine details of which are still not available. Opinions vary as to whether this reflects poor management skills or internal disagreement.

On the trade front, the Trans-Pacific Partnership (TPP) is dead; but there have been no punitive unilateral tariffs levied against China, as seemed possible if not likely back in January. In fact, unexpectedly, Presidents Trump and Xi seem to have established a constructive rapport. President Trump even said this week in Beijing that America’s massive deficit with China was not the fault of the Chinese, but of previous American administrations.

The NAFTA agreement with Canada and Mexico is now subject to renegotiation; but Mr Trump’s instinct to withdraw altogether has been kept in check, not least by Agriculture Secretary Sonny Perdue. Overall, Mr Trump’s aggressive trade policy has been more hot air than hard action.

All of Mr Trump’s initiatives on immigration have run into challenge in the courts and the famous (or infamous) wall is still in the planning stage. There is still no budget for it.

Insofar as the proposed infrastructure programme is concerned, there has been no progress so far. America’s arterial bridges and highways mostly date back to the era of Franklin D Roosevelt’s New Deal. And most of the interstate highway network was completed in the 1960s. The administration has been criticized for its inaction on infrastructure even from the Right.

One reason offered by Democrats for this inaction is that an infrastructure programme will require extensive bipartisan cooperation in both Washington and at State level. They say Mr Trump has proven so divisive that almost any scheme proposed is likely to be rejected by his opponents. That is disingenuous – the real reason is that there will be no infrastructure imitative until the matter of fiscal policy is resolved.

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One area where the administration has been active is in the sphere of deregulation. Mr Trump has used executive orders to abolish regulations – including environmental ones – without recourse to Congress. This only confirms the suspicions of Mr Trump’s opponents that he doesn’t care about the environment or safety at work.

Foreign policy is outside the scope of this piece. But I cannot help saying that Mr Trump has adherents in unexpected places. Exhibit One: Prince Mohammed Bin Salman of Saudi Arabia. (More on him soon…).

According to both critical Republicans and mainstream Democrats the overall consequence of Mr Trump’s policies has been to undermine America’s leadership role in the world. The administration has often looked chaotic, with hiring and firings of bewildering rapidity and many posts in the federal government remaining vacant. The Economist’s lead story today is entitled Endangered – America’s future as a global power.

An electoral reverse

On Tuesday (07 November) the citizenry of Virginia and New Jersey went to the polls to elect Governors. Pundits had widely described these contests in swing states as referendums on Mr Trump’s presidency. In the event Democratic candidates won in both states by convincing margins.

Ralph Northam won in Virginia with nearly 54 percent of the vote. President Trump tweeted that Ed Gillespie, the Republican candidate, lost because “He did not embrace me or what I stand for”. If a Republican wins, it is thanks to Mr Trump; if he or she loses it is because the candidate in insufficiently Trumpian. In New Jersey Democrat Phil Murphy won with 55.6 percent of the vote against a pro-Trump Republican candidate.

Meanwhile, former Chief Strategist Steve Bannon is supporting Republican insurrection – he even supported Ed Gillespie. And he is championing Judge Roy Moore, an extreme social conservative, for Alabama’s vacant senatorial post which will be decided on 12 December. What is now clear is that Steve Bannon and his Alt-Right movement want to destroy the traditional, gracious Grand Old Party. And if Mr Trump stands in his way he will try to destroy him too.

Climate Pains

When Mr Trump announced in June that America would withdraw from the framework of the 2014 Paris accord he made a simple calculation. His natural supporters would see it as America First in action. His opponents would react with predictable outrage. I doubt that he considered the message that he was sending to the world at large: that America was no longer interested in playing a leadership role.

Of course, the Chinese have now stepped into the fray. They gain credibility by propagating orthodox climate change science without having to restrict their carbon emissions to the same degree as Europe or America. Win-win.

The Healthcare Conundrum

Americans pay lower taxes than the British (and much lower than the French and Germans); but the median American family pays significant monthly health insurance premiums that reduce that differential to all but nothing.

There is no state-sponsored healthcare provision in America as there is in Europe. But the poorest in society are not left to their fate when they get ill. There is Medicaid. The problem is that, the more less-well-off Americans have access to Medicaid, the more middle class Americans have to pay in health insurance. Obamacare was good news for the worst-off; but middle class Americans have had to pay for it.

Mr Trump tried and failed to repeal Obamacare in July, but a number of key Republicans (not least Senator John McCain) voted against it in the Senate. The idea that America would be better off with a form of National Health Service is gathering support on the Left – and not just among supporters of Bernie Sanders.

Immigration blues

Mr Trump, like right-of-centre British Conservatives, does not object to uncontrolled immigration out of any xenophobic or racist instincts – though there are important issues around social cohesiveness and national security.

For conservatives and libertarians in America and Britain, the main concern is that large-scale unskilled immigration drives down wages and inhibits opportunities for the indigenous working class. As wages have gone down, so people have withdrawn from the labour force and have often adopted chaotic lifestyles. Nobel prize-winning Professor (Sir)[i] Angus Deaton of Princeton University has determined that longevity amongst working class white American males is actually declining – in tandem with increased suicide and opioid abuse. Mr Trump, I believe, is sincerely concerned about such people in a way that Mrs Clinton was not.

The left-behind did not vote for Mr Trump because he was a Republican – but because he was an outsider.

The left-behind did not vote for Mr Trump because he was a Republican – but because he was an outsider. On my recent journey across America I was struck by how many people I encountered who worked in hotels, restaurants, bars, shops and airports who were first-generation immigrants – overwhelmingly Hispanics. Many of whom cannot speak English. According to some estimates, Hispanics now outnumber white Anglos (what Americans call Caucasians). We should not be surprised that the white working class feels under threat.

A question of character

President Nixon was notoriously foul-mouthed – but always in private. Donald Trump is daily intemperate on Twitter – and with 42 million followers. Many regard his tweets as evidence of bad character. As I reported recently from America, his own Secretary of State supposedly called him “a moron”, and ex-President George W Bush accused him of debasing the presidency. But there is another view. Trump campaign advisor Stephen Moore told Martin Wolf[ii] that while most politicians are jerks in private and sweethearts in public, Mr Trump is the other way round. It seems that he can be charming and emollient in private even though he is invariably abrasive in public.

But he is a man with whom it is difficult to disagree. No one in his circle can say NO to him (except possibly the Defence Secretary, General James Mattis). He surrounds himself with family: some, like son-in-law Jared Kushner who is a senior advisor, are of higher calibre than others. His team are difficult to approach, reflecting the feverish policy environment in Washington just now in which nobody quite knows how things might pan out.

But rulers reflect the ruled. Rude leaders get votes from rude citizens. Mr Trump reflects the coarsening of civil society that is not unique to America.

The outlook

Mr Trump could yet prove to be a transformative President. But my colleague the economist Felipe R Costa convincingly explains in this month’s Master Investor magazine why his ambition of increasing US GDP growth is unlikely to be fulfilled.

What I took away from my recent month in America (about which I wrote in this month’s magazine) was that this great nation runs largely on autopilot. America’s pundits are obsessed by what goes on in Washington; but for most Americans, on a day-to-day basis at least, Washington does not matter.

Steve Bannon’s fear that Mr Trump could be felled by the 25th Amendment (that is – his cabinet could declare him mad) is, I think, far-fetched. Robert Mueller, who is leading a Special Council investigation into Russian meddling in the 2016 election, has already filed charges. And it is conceivable that he could yet unearth something that leads to the President’s impeachment – though not likely.

It could all go wrong, of course. Richard Nixon’s presidency unravelled when he instructed his Attorney General to fire the Special Prosecutor investigating Watergate. But many Americans regard the Mueller investigation as a waste of money – if not an attempt by the deep establishment to reverse the result of the presidential election. Mr Trump says it is all fake news. The prospect of impeachment in turn conjures the prospect of President Pence – one that disgusts most liberals more than the current dispensation.

The mid-term elections are only one year away. Talking of anniversaries, we shall then be commemorating the centenary of the armistice that ended the carnage of WWI. Assuming we will have escaped a nuclear exchange with Little Rocket Man, we shall have a better idea of whether Mr Trump will make the course – and whether Trumponomics works.

Predicting the future, even one or two years hence, is becoming increasingly difficult. My best guess now is that Mr Trump will survive until the end of his (largely chaotic) first term. Whether he would want to be re-elected, aged 74, is another matter. He does not seem to enjoy being President very much; and he may well conclude that he has achieved all he can – especially if, like the Emperor Hadrian, there is a wall named after him for evermore.

As for Trumponomics – I suspect it will be remembered more as a stock market phenomenon rather than a coherent and enduring economic policy. But that will be enough to secure Mr Trump an elaborate tomb in Arlington National Cemetery when the day comes.

[i] He is British, educated at Fettes College and Cambridge.

[ii] BBC R4, Tuesday, 07 November 2017.

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