Opinion article

How to read Trump

Percy Allan AM discusses what to expect from President-elect Donald Trump following the recent US election.

Contrary to expectations, financial markets to date have responded positively to a Trump Presidency.

The reason is that Trump is promising an aggressive growth agenda which will:

  1. Cut the corporate tax from 35 per cent to 15 per cent over the next decade and lower personal tax rates across the board;
  2. Fund a massive civic infrastructure program to renew American cities and highways;
  3. Free businesses from environmental, health and safety and other strictures; and
  4. Boost defence spending and scrap the Dodd-Frank Wall Street Reform and Consumer Protection Act.

One estimate is that this will blow out the US government’s deficit from about two per cent to eight per cent of GDP thereby increasing its debt to 140 per cent of GDP by 2030. Anything over 60 per cent is considered imprudent by credit rating agencies.

However share markets are not concerned with the long term fate of America, only its short and medium term outlook. And that looks bullish on Trump’s pump-priming promises.

Trump’s brand name (for example Trump Tower) is synonymous with extravagance. It’s not in his nature to practice restraint let alone austerity. With a Congressional majority in both Houses he will get whatever he wants unless the economic dries in the Republican Party block him.

That’s unlikely given his electoral mandate and that he owes his colleagues no favours. Based on his past business dealings expect him to be vengeful towards any Republican who now crosses him. 

Trump was successful because he devised an electoral strategy that targeted the Democratic Party’s traditional heartland. The Republicans after losing to Obama in 2008 did a post-mortem that concluded they needed to broaden their appeal beyond white middle class voters to blacks and Hispanics.

Trump decided instead to deepen the party’s white base by winning over the Democrat’s traditional working class constituency that had been hurt by the Global Financial Crisis (GFC), cheap imports, undocumented immigrants, company offshoring, industrial automation and the upskilling of work.

In developing a rainbow coalition the Democrats assumed their working class supporters were rusted on so did not need nurturing. As the Democrats became more enthusiastic about gender equality, environmental sustainability and global engagement their appeal to professional people in the new information economy rose.

However, non-college educated white workers in the old goods and services economy (now labelled the rust belt) saw their jobs disappear and their wages fall and felt no one cared about them until Bernie Sanders (a socialist) and Donald Trump (a capitalist) sought the Presidency. Sanders lost to a veteran politician, Hilary Clinton, who had the support of her party’s establishment. Trump beat his fifteen Republican rivals to the dismay of his party’s seniors.

The Republicans are now the party of businessmen and workers who want tax cuts and industry protection while the Democrats are the party of professionals and welfare dependents who are the beneficiaries of the information economy and big government.

Within the GOP, Ted Cruz’s small-government Tea Party has been marginalised while anti-abortionist evangelicals have been subsumed within Trump’s fold. 

Trump wants to pull up the drawbridge and make America a self-reliant fortress against foreign competitors and terrorists. His opponents, both within and outside his party, want America to foster free trade, capital flows and open immigration. His vision is inwards, whereas Clinton’s was outwards.

Clinton’s supporters largely live in metropolises close to the American coastline where the outlook is global. His supporters are mainly in inland cities and small towns where competition and innovation are seen as threats to be contained.  

Trump has managed to cherry pick the most populist policies of both the Bernie Sanders left and the Newt Gingrich right. Essentially he wants to:                                  

  • End Neoliberalism and Pax Americana (the bugbears of the left), and                            
  • Dismantle Environmentalism and Feminism (the pet hates of the right).

Expect him to announce bold proposals in his first week in office to overturn Obama’s legacy and change America’s direction. He is a man in a hurry who has promised within his first 100 days in office to:

  1. Withdraw from the Trans-Pacific Partnership Agreement;
  2. Renegotiate the North American Free Trade Agreement;
  3. Declare China a currency manipulator unless it stops devaluing the Yuan;
  4. Employ every legal tool to stop “trade abuses” against America;
  5. Begin expelling two million illegal immigrants with criminal records;
  6. Suspend immigration from terror-prone regions where vetting is difficult;
  7. Lift restrictions on oil, natural gas and coal production and distribution;
  8. Cancel all payments to UN climate change programs;
  9. Freeze all federal government employees to reduce staffing by attrition;
  10. Cancel all non-Congressional Executive Orders by President Obama;
  11. Start appointing conservative judges to the Supreme Court; and
  12. For every new regulation, scrap two existing regulations.

Trump gave a conciliatory victory speech on election eve calling on Americans to unite behind his movement to make America great again.

Given the vitriolic campaign and the deep divide across America (Clinton won the popular vote, but lost the Electoral College vote) unity seems unlikely.

Many won’t forgive him for his racist and misogynist remarks. Also his personality is not conducive to consensus, but to conquest. Like a lion he is calm after a kill, but ruthless in conducting business or politics. 

If his autarkic economic policies don’t trigger a trade war, but instead generate faster US growth and more jobs, in a year’s time he could be more popular than now.

If that happens the biggest risk is that his huge ego causes him to over reach either domestically or internationally creating a crisis beyond his control.

Given his inexperience in government and his reluctance to take outside advice such a scenario could end in grief. History is replete with demagogues who promised nirvana and when their initial success back-fired exploited the ensuing chaos to maintain support.

Let’s hope that does not happen this time because America is the bastion of the free world, militarily, politically and economically. If it stumbles, other democracies could wilt. 

On a positive note, his inclination to befriend Russia and China rather than encircle them militarily could usher in a new period of cooperation and co-development. Pulling that of would be a masterstroke and reinforce his reputation as a deal maker. It would also be the best outcome for Australia.

About the authors

Percy Allan

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Percy Allan joined the NSW Treasury in 1976 and after a stint as senior policy adviser to both the state Treasurer and Premier, went on to become Secretary of the Treasury and Chairman of NSW TCorp between 1985 and 1994. He then joined Boral as finance director and from 1997 has chaired boards and operated a public finance consulting practice. He’s also a visiting professor at Macquarie University and was awarded the Order of Australia (AM) in 1996 for his leadership role in reforming the public finances of NSW.