We always knew that Donald Trump was a badass. What we didn’t know (though the stock markets kind of knew) was whether his rag-bag of policies might just work…
Hail to the Tweet!
The 45th President of the United States is an outsider – a maverick who refuses to play by the book. His management style is one of abuse and bully – and then, if the victim survives, stroke. Stalin’s was similar: his acolytes all considered themselves graciously favoured that they had not been eliminated[i]. Until they were eliminated, that is.
He is not an intellectual and it is difficult to infer what intellectual influences have nurtured him, if any. In fact, he is an anti-intellectual and an anti-expert. That is why he is an anti-politician. He is simply outside the box in every respect. And his supporters love it.
But he does understand the ancient game of power. Moreover, he gets results. Let’s just consider some of his achievements so far.
North Korea is back at the negotiating table
People forget that Mr Trump began his presidency by complimenting Kim Jong-un on being “a very intelligent guy”. He first stated that he would like to meet him in April last year. Things then turned nasty after Kim launched a series of missile tests, one of which triggered an emergency alert in Sapporo, Japan. Mr Trump called Kim “short and fat”. Mr Kim called Mr Trump “a dolt”. So, at the United Nations, Mr Trump referred to the North Korean leader as Little Rocket Man.
Sticks and stones may hurt my bones but names will never hurt me…
But Mr Trump has, one way or another, induced in the short fat rocket man (who also has a silly haircut) a spirit of conciliation. Last week Kim crossed into South Korea for a brief and elaborately unlikely love-in with South Korea’s President Moon Jae-in. Both sides swore everlasting fraternal love – even though we all know that Kim is not going to dismantle the prison-state that is the Democratic People’s Republic of Korea – an entirely undemocratic state where people starve. All the mainstream media agreed that the optics were highly encouraging – meaning that they hadn’t a clue what was really going on.
Probably, for Mr Kim, the real prize is to meet the Big Man in the White House – an event scheduled for the end of this month, though nobody knows quite where. But we should not assume that the North Korea-USA summit will be as happy as the North Korea-South Korea one. On the contrary, it could turn out to be a disappointment if conventional diplomacy takes over.
In July last year North Korea announced that it had successfully tested a long-range missile capable of carrying a nuclear warhead. North Korea remains the most intractable threat precisely because, unlike Russia whose citizens travel widely and have a cosmopolitan knowledge of world affairs, the North Korean people are entirely isolated. The country’s leadership has operated for 70 years with a siege mentality and displays little conception of the need to abide by international norms and rules.
The upcoming summit between the Dear Leader and The Donald could turn out to be the moment when North Korea first tentatively enters the comity of nations. On the other hand, it could all go horribly wrong. We don’t really know what either side would regard as a successful outcome. Denuclearisation is the nebulous goal – but what does that mean and at what price?
The new US Secretary of State, Mike Pompeo, thinks that North Korea is nearly at the stage of producing a nuclear missile which could reach the United States. On the other hand, that is just the opinion of elements within the US intelligence apparatus. Until Mr Kim is prepared to dismantle his weapons and to invite international observers to verify this, North Korea will remain a latent threat.
The question is then whether Mr Trump will be able to leave the forthcoming summit without proclaiming victory – even if no tangible results have been achieved. The real point, though, is the optics. Mr Trump will gain kudos as a peace-maker because the meeting happened at all – something that Mr Obama could not have dreamed of.
And yet Mr Obama got the Nobel peace prize almost as soon as he was inaugurated – just for uttering nice soundbites and being black. Not that Mr Trump will like Stockholm when he gets there.
The threat of a trade war has already yielded results
In his inauguration speech on 20 January last year Mr Trump said: “Protectionism will lead to great prosperity and strength”. Earlier this year he finally imposed a 25 percent tariff on all steel imports and a 10 percent tariff on aluminium imports – Chinese or European, though there appears to have been some back-tracking on these measures. Britain has been offered a (temporary) exemption – but not Japan. It is likely that Mr Trump understands very well that protecting a few jobs in the US steel industry might come at the price of losing jobs in the US automotive industry. But that was just the overture.
In late March Mr Trump proposed new tariffs on Chinese exports to the USA on about US$50-US$60 billion of goods annually. Hitherto, Chinese cars exported to the USA have attracted a tariff of 2.5 percent whiles cars exported from the USA to China were slammed with tariffs of 25 percent. To regard that as inequitable is not mad.
On 04 April China retaliated by proposing additional import duties on a further 106 American products, including soybeans, Boeing aircraft, cars, chemicals and agricultural products. The next day (Thursday, 05 April) the US market plunged by 1.5 percent – largely due to falls in industrial stocks – on opening, before staging a remarkable rally into positive territory. Mr Trump’s former adviser and notorious economic nationalist Steve Bannon was quoted as saying: “To Hell with Wall Street if they don’t like it”.
This isn’t trade war-war; this is trade jaw-jaw.
Actually, everyone knows that if US soybeans get expensive in the domestic Chinese market they will just source more from Brazil (who might import any shortfall from the USA). Similarly, Boeing airliners are delivered only after long lead-times. In fact, both Boeing (NYSE:BA) and Airbus (EPA:AIR) have a backlog stretching out almost one decade: so it is unlikely that any Chinese airline would cancel its Boeing order in favour of Airbus.
President Trump’s new economic adviser, Larry Kudlow, said the proposed tariffs were a negotiating tactic in the fight to halt China’s violation of US intellectual property rights. And a defiant President Trump ridiculed the idea that he had started a trade war on Twitter. “We have a trade deficit [with China] of $500 billion a year with intellectual property theft of another $300 billion…We cannot let this continue”, the President tweeted.
Nevertheless the Chinese retaliated with tariffs of 15-25 percent on $3 billion of US items on 02 April. But on 10 April President Xi, speaking at a business conference in Hainan, admitted that there was an issue here that China could address. He said China might cut automotive tariffs and improve intellectual property protection.
And just in the last week it looks like the Germans have persuaded the French to move on EU tariffs on US automotive imports. Things are moving Mr Trump’s way.
Just as he was announcing new tariffs Mr Trump was also talking up the possibility that the USA might join the Trans-Pacific Partnership (TPP) which he had described during the presidential election campaign as “a disaster”. This is probably because, without the US, the TPP could come under the undue influence of China – as the 11 existing TPP members know.
As I recently discussed, having to choose between the US and China in any future trade war is a huge concern to both Australia and New Zealand. It will be ironic if the forthcoming US mid-term elections were to expose the Democrats as more protectionist than Mr Trump when it comes to membership of the TPP.
On 22 May the US Treasury is likely to recommend new rules to block Chinese takeovers of American technology companies. The US will hold hearings on its proposed tariffs on 15 May and a deadline for comments is set for 22 May. Secretary for Commerce Wilbur Ross envisages that there will be a negotiated outcome.
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Meanwhile Federal Reserve officials warned that uncertainty over trade policy could influence the Fed’s plans to raise interest rates. They had better get used to it. This spat will go on for some time. China has always pleaded in trade negotiations hitherto that it is a low-income, developing country: but that is not how the Chinese see themselves now. China’s state-driven goal is to be a “moderately prosperous society by 2020”.
Premier Li Keqiang told the opening session of the 13th National Congress on 05 March that “China’s economy is transitioning from a stage of rapid growth to a stage of high-quality development”. In this stage China will wish to protect its own intellectual property and to open up its economy to foreign investment. In the future, Mr Trump might be thought to have done China a favour by challenging an international trade framework which favours mass Chinese exports of low value-added products.
Exports account for only about 13 percent of US output as compared with about 20 percent for China, 30 percent for Britain and 45 percent for Germany. Mr Trump will have calculated that any trade war – even if it got serious – would hurt others more than it would hurt America. Which is why it will not happen.
Right now President Trump is sending a top-level delegation to Beijing headed by Treasury Secretary Steve Mnuchin and Trade Chief Robert Lighthizer. This isn’t trade war-war; this is trade jaw-jaw.
ISIS has been destroyed in the field
ISIS has been decisively defeated at last under President Trump – something that Mr Obama promised but did not deliver. Of course, the war against the toxic caliphate is not entirely over as its ideology is still alive in cyberspace. As the USA seeks to withdraw from Syria (something that may not happen) there will be fears that this perversion of historic Islam may re-rear its repulsive head.
Meanwhile, President Trump is on the verge of scuppering Mr Obama’s Iran nuclear deal – egged on by the new Secretary of State and National Security adviser – Mike Pompeo and John Bolton respectively. The latter are often described as neo-cons (the people who engineered the invasion in Iraq). But that is to miss the point: Mr Trump is instinctively averse to interventionism and adventurism. Fundamentally, he believes that so long as America looks after its own it can keep its nose clean and avoid mishaps – such as the protracted Afghan disaster.
He believes that the Iran deal simply gives the Islamic Republic too much wiggle room. So does Israel. Macron, Merkel and May might tell him that there is no Plan B – though yesterday the Financial Times reported that the Europeans are working on…Plan B!
Regarding climate change, I admit to regretting Mr Trump’s renunciation of the Paris Accord – but I can understand why he has done so. The deal was ludicrously indulgent (once again) to China, which is the world’s biggest emitter of greenhouse gases by far. As I wrote recently, there is something odd about countries such as Australia and New Zealand going carbon neutral – yet exporting all their coal to China. Moreover, there are flagrant inconsistencies in carbon accounting techniques which have been exploited by the Chinese and others.
If the international brotherhood of reds and greens – an obnoxious alliance since we conservatives are, essentially, conservationists – is outraged by Mr Trump, maybe they should consider that the American renewables market has been greatly fortified by Mr Trump’s tax reforms.
The US economy and markets are still on a roll
The mainstream economic establishment, exemplified by economists like Paul Fisher, formerly of the Bank of England, pronounced the Trump administration’s tax cuts (equal to about 0.8 percent of GDP) and spending package economic madness. But there is little sign of the predicted inflation. Rather, the US economy is still taking up slack.
I am still arguing that the trend of the US market is upwards on the back of rising earnings data.
The Dow Jones Industrial Average (DJIA) peaked at 26,616 on 26 January and, as I write, is somewhat below 24,000. OK, volatility has returned to the stock markets – a return to normality. The weeks of 05 February (when the DJIA plunged by 1,600 in a single day) and 26 March this year were particularly turbulent. We had better get used to it: that is nothing to do with Mr Trump’s policies but rather the natural consequence of rising interest rates to historically “normal” levels. I am still arguing that the trend of the US market is upwards on the back of rising earnings data.
Unemployment in the USA is at a record low. The economy is still growing at nearly 3 percent at a moment when the European economy is slowing. Corporations are repatriating dollars back to America by the billion. Even before Mr Trump came on the scene global cross-border trade as a proportion of global GDP was in narrow decline, though trade in services is rising rapidly. That, of itself, makes the world economy more immune to the effects of a so-called trade war.
Trump derangement syndrome is rife
In the current ideologically charged climate across the English-speaking world, anyone who tries to write dispassionately about the Trump administration may be liable to abuse. Yet in Asia (even China!) Mr Trump is widely respected and admired. Not only might he win the Nobel Peace Prize, but he could become a Confucian paradigm…
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What Mr Trump’s detractors should ask themselves is why, 17 months after his inauguration, has he been able to re-configure the agenda so extensively. No doubt many liberal-inclined thinkers believe that the people who voted for him did not know what they were voting for and do not understand the damage he has inflicted to the body politic. (Revanchist Remainers in the UK argue the same.) “Liberals” (for example the economist Dambisa Moyo[ii]) who championed universal suffrage in the last century now want to restrict voting rights for “uneducated” people. Defence of the interests of the indigenous working classes is now the business of the right.
The age of egos – and spies…
Not since the 1930s has the world been led by a coterie of personalities each of whom embodies their country so completely. In America, Mr Trump is the American eagle resurgent. In Russia, Mr Putin is the chess-playing sphinx who has put his country back on the map. President-for-Life Xi of China casts the shadow of a dragon. Mr Modi’s smile intimates an India that has teeth. President Erdoğan is the first head of state and government of a Turkey that should not be messed with. President Macron implores France to adopt a spirit of conquest…
If you find the comparison with the 1930s unsettling – you should do. In this rapidly moving global states system geopolitical risk is probably higher than at any time during my not insubstantial lifetime. Mr Trump, in my view, is a symptom of this heightened geopolitical risk rather than its cause.
In this new age of global power-jockeying, espionage is enjoying a renaissance. Few investors know, however, that the CIA has its own investment fund. It is called In-Q-Tel (IQT – founded back in 1999). The purpose of the fund is to accelerate the development of new technologies for government agencies. With admirable American transparency, IQT’s website lists all of its investments. Many seem to be involved in cyber-security, aspects of artificial intelligence (AI) and, inevitably, data analysis.
Israel’s state intelligence agency, Mossad, also recently confirmed that it invests in its own technical innovation fund called Liberdad (Spanish for freedom). The only problem is that they keep their portfolio – you’ve guessed it – secret. Smart investors can, however, work out in some instances where the secret money is going. I’ll have more to say about that shortly.
Have a nice trip, Mr President
I look forward to the President’s arrival in the UK on 13 July (just in time for my 60th birthday party). No doubt the services of Rent-a-Mob PLC will be much in demand that day as the angry coalition of the self-consciously self-righteous sets out to lambast a man who has only tried to deliver on the election promises that got him to power in a vibrant democracy.
I suggest that he helicopters directly to Balmoral for tea with HMTQ (while Ms Sturgeon fulminates at the gates). If he avoids London altogether – and the city’s dull, cliché-spouting mayor – he would not be the only one these days.
Next week I shall be in France on the trail of another mercantilist – Mr Trump’s bromancepartner, Emmanuel Macron, on the occasion of his first anniversary in power. A very impressive guy methinks – despite the dandruff.
[i]As is apparent in the outstanding movie, Death of Stalin.
[ii]In her recent book, Edge of Chaos.