H+K's view on Trump's election success
As the world wakes up this morning reeling from the results of the US election, thoughts are immediately turning to what a Trump presidency will mean for the US, Britain and the world.
A referendum on domestic policies
Predictions and pollsters failed to predict last night’s results, but the victory and Trump’s campaign have signposted the direction of his presidency. Pundits, and Trump himself, have called this “America’s Brexit”. But what is most important to understand is that in the results we had a referendum on America’s domestic policies, not foreign policy, and is further evidence voters in Western democracies are rejecting the narrative that globalisation will make your life better. People don’t feel better off, they feel alienated and disillusioned, and they are showing this at the voting booth.
This wasn’t just a victory for Trump, it was a collapse for the Democrats who believed Congress, and at a minimum, the Senate, was theirs for the taking. The Republican party, in recent years, has been accused of being elitist and out of touch, but have no doubt there will be a much introspection among the Democrats this morning as they lick their wounds and emerge from shock.
Withdrawing from the global stage
Throughout his campaign, there have been clear signs that a President-elect Trump is not prepared to play a meaningful role in global multilaterals. He’s threatened to pull out of the Paris climate agreement and to drawback from NATO while increasing military spending. None of these claims have anything to do with foreign policy. They are short-termist beliefs that in failing to ratify the Paris agreement he can create jobs for Americans through coal, and that in building up our military as a quiet show of force he can also create jobs and drive industry.
In his first speech as President-elect he showed some self-awareness, looking to calm the markets and avert a slide in the dollar. He spoke of unity, of healing a nation deeply wounded by the most divisive campaign in recent history.
Financial markets will be desperate for clues as to whether Trump will follow up on his campaign rhetoric. While there has been some volatility in the currency markets and Asian trading, the FTSE has recovered after an early dip. Traders this morning were tense and expecting the worse. However, the worst fears have not yet materialised. The markets since Brexit have been volatile and this has presented a problem for businesses. It is unlikely that Trump’s election win will allay fears but equally this period before his inauguration on Friday 20th January may be a time of calm before the storm.
A swathe of good economic data over the summer has led to the expectation that Janet Yellen would raise US interest rates in December. Yellen is seen as a dovish Chair and the populist rhetoric of the Trump campaign may throw doubt on the future tenability of her position. That said, Yellen's Chair doesn’t expire until February 2018 and it would be highly unusual for a Chair of the Federal Reserve to resign after an election.
Many in the capital markets will be watching to see what Trump's priorities will be. Greater fiscal stimulus in the short term could benefit the US economy and start a post Brexit style bull run. On the other hand, as some investment institutions have already suggested, a future trade war could lead to a cut in global GDP and disaster for emerging markets and capitalists everywhere.
Pro-(American) business, but what about trade?
While Trump flip-flopped on issues throughout his campaign, one of the few areas of consistency was his isolationist position of international trade. The Trans Pacific Partnership is almost surely dead in the water, and there are growing concerns he will take America out of the North American Free Trade Agreement. Once again, these statements have been cloaked in the ambition that doing so will create jobs for hard-working Americans, but don’t take in to consideration what it could do to American businesses reliant on an international supply chain.
There are fears that Trump’s protectionism will exacerbate global economic stability and forecasters around the world this morning will undoubtedly be reforecasting and remodelling, which could result in downgrading of global economic growth projections.
One area where free trade agreements may quickly be put in place is with a post-Brexit Britain. Obama’s comments that the U.K. would “go to the back of the queue” now null and void, could offer a glimmer of hope for the International Trade Secretary, Liam Fox. While the special relationship transcends politics, in recent decades it has been solidified – for better or worse – by close relationships between Presidents and Prime Ministers, notably George W. Bush and Tony Blair, and Ronald Reagan and Margaret Thatcher. The U.K. Prime Minister will have to choose carefully how to build a relationship with a President-elect who has done little to ingratiate himself with the community of global leaders.
Yet 6.7% of British trade is with the U.S. and we will look to increase that in the coming years. Even a stagnating U.S. economy is a force to be reckoned with and the City and Wall Street depend in part on strong ties. Theresa May may now be ruing the three hour Parliamentary debate on whether to ban Donald Trump from visiting the U.K.
Too soon to tell
In 1972, Chinese Premier Zhou Enlai famously commented about the impact of the French Revolution, saying it was 'too early to say'. Widely interpreted as a way of emphasising the Chinese ability to take the long view in history, it was subsequently revealed he was speaking of events in 1968. While that statement may have been debunked the sentiment can be appreciated this morning as America stares into a political abyss of unknowns.
However, amongst all the political commentary and guess work that will follow, we must remember that America is a hugely resilient nation. Yes, its soft power may weaken and its role on the international stage may be questioned, but this is not happening purely because of the results this morning. America’s role has been changing for many years. It is still the world’s largest economy and will remain so in the short-term. Its exports – cultural and economic – will remain vital to the world. Its people are naturally optimistic. As America goes, so goes the world, and the world must hope and encourage those who said #NeverTrump to come together to make the results of the election work in the best way possible way, for both the country and the world.
H+K Public Affairs Team