It’s déjà vu – all over again
The great American people have spoken. And the opinion polls were wrong. Again. Those beautiful bellwether states of Ohio, Florida and Georgia called for Mr Trump who is, this morning, the President-Elect of the United States.
All over the world “experts”, liberals and lefties are swooning in disbelief, sick as parrots. A flock of black swans (to continue the bird metaphor) has pooped generously on their feathered heads. Just like on 24 June.
I’m not going to attempt to analyse here why a reality TV star-cum-billionaire is set to move into the White House while professional politico Mrs Clinton faces retirement. But I’d like to highlight a few themes that will assert themselves in the months to come under a Trump presidency. This is a good moment for investors to stick their finger in the wind.
The silent majority bites back
Just like in Britain during the Brexit debate, a great mass of ordinary people has taken the opportunity to vote against the politics of business-as-usual. While the world burns and the international financial system teeters, Washington has been absorbed in discussion of transgender bathroom rights. As in Britain, ordinary Americans have felt that their fears about unbridled immigration have been ignored by the political elites.
Call it populism if you will, but the rise of social media has facilitated the mobilisation of the masses in a way that the revolutionary socialists of the early 20th Century could only have dreamed of. Henceforth, political elites will have to work harder to maintain their traditional supporters’ fickle allegiance – not least in Europe.
There is a mood abroad in America and elsewhere that the rich – both individuals and corporations – are rampant, while the incomes of ordinary people are falling back. It would be ironic if a billionaire with a reputation for isolation could address that by securing an international tax treaty that could force the Apples, Amazons and Starbucks to cough up at last. That would impact their share prices.
Aftershocks expected in Europe
The aftershocks of the American political earthquake will hit Europe very soon. Jamie Dimon, CEO of JP Morgan said in October that Brexit made the collapse of the Eurozone five times more likely. Brexit plus Trump probably makes that event 20 times more likely. Make no mistake about it: this result is a catastrophe for the European political elites.
Mr Trump is no fan of the European Union, still less of the single currency project. He has said that, under his administration, Britain will be shifted from the back of the queue for a trade deal to the front. He is going to make Europe pay its share of the bill for NATO. The American defence umbrella will no longer be free. This will have huge significance for European budgets.
Meanwhile the old comfortable certainties of the European political elites – exemplified best by the insouciant J-C Juncker – are dissipating. My best guess is that the Italian referendum of 04 December will go against Signor Renzi. Monsieur Hollande is heading for the same retirement home as Hillary. Marine Le Pen will score a level of support in the forthcoming French presidential election such that, even if she does not win, French politics will never be the same again. What’s more, it’s very doubtful that Frau Merkel will be Bundeskanzler one year hence.
All this makes for much increased political instability in Europe – I compared this in the summer to A New 1848. That will make the Brexit negotiations almost impossible to conclude. “Fuzzy Brexit” is now the most likely outcome. Moreover, wholesale reform of the single currency system will be out of the question. Sooner or later the Eurozone will be reformed by dramatic external events.
This morning the Dollar is under pressure and the “safe-haven” Yen has surged. Very soon it is the Euro that will tremble.
International relations: The Arab World and Iran
I’ve just returned from a visit to Egypt and the Gulf. My perception was that while Arab political elites have found the American election process distasteful, there is no animus against Mr Trump. True, Mr Trump has said some unflattering things about Muslims (though not about Islam). But they know that Mr Trump will not give them a hard time over domestic policy (human rights etc.) as Mrs Clinton would have done.
Mrs Clinton, as Secretary of State, effectively supported the Islamist extremist Mohammed Morsi as President of Egypt. Mr Trump will not make a similar mistake. He will want robust anti-Islamist rulers like President el-Sisi to hold on to power.
In Syria, I would not be surprised if Mr Trump very soon offers Mr Putin a blank cheque to bring the long-smouldering civil war to an end by military means. Mrs Clinton would have refused to do business with President Bashar al-Assad – who, whether we like it or not, is the probably only man who can hold Syria together. Mr Trump will have no such scruples. In my personal view, any outcome that brings the bloodshed to a halt will be the right one. The annihilation of the “Islamic State” will go down well at home, and will be welcomed in Arab capitals.
While Mr Trump has threatened to undo Mr Obama’s deal with Tehran (under which sanctions were removed) I think it is unlikely that he will want to pick up cudgels with Iran, which is an implacable opponent of “Islamic State”. (It is also a friend of Russia.) We can expect some fruity language to be hurled towards the Persian Gulf, but Mr Trump will not side with the Israeli hawks who want to use military force.
China and Russia
The China-Russia axis has had a great year, and Mr Trump’s victory is the icing on the cake. China and Russia would prefer to do business with a horse-trading deal-maker than with a sanctimonious moralist. They now believe that their authoritarian political systems are far superior to the divisively “democratic” West – and this has given them renewed confidence.
In trade talks, the Chinese expect their opponents to play hard ball with them. They will certainly not hold it against Mr Trump if they get less favourable trade terms. As it happens, the Chinese at this time are trying to re-balance their economy away from export-led growth towards internal consumer-driven growth, so trade terms are less critical.
America has an interest in the continued strength and stability of the Chinese economy. The number one and number two world economies have to cooperate, whatever they think of one another.
As for Russia, she has recently been preparing for a war on the assumption that Mrs Clinton would win. I am very happy to say that I don’t think that war will occur now. Mr Trump will, in time, accept Russia’s sway over Crimea as a fait accompli – and sanctions will become pointless. Of course he will demand something in return – possibly a reduction in nuclear weapons capability. The art of the deal!
The US fiscal deficit
Mr Trump’s instincts are to reduce taxes, especially those on blue collar workers. But he also wants a massive programme to upgrade America’s fraying infrastructure, at the same time as increasing military expenditure. All this is bad news for the US fiscal deficit. Something will have to give.
Expect Mrs Yellen to resign soon as Chairperson of the Federal Reserve on the grounds that she is unable to work with President Trump. In my book that will be good news. All those who worship the Prophets NIRP and ZIRP (as I recently described them) should be encouraged to retire. On the other hand, increased rates will mean higher interest bills for heavily indebted governments.
But then, as Crispin Odey recently argued[i], there’s going to be a recession anyway. Investors should already be in defensive mode.
The end of democracy or a new beginning?
Dr Simon Schama has just described Mr Trump’s victory as a calamity for democracy (even though Mr Trump won a majority of the popular vote as well as the Electoral College). I recall he said something similar on the morning of 24 June. We can expect more in this vein from the global liberal elite who this morning collectively resemble that famous image in Edvard Munch’s The Scream. They just don’t get it.
[i] Interview with Simon Watkins in The Mail on Sunday, 06 November 2016, page 91.