Donald Trump’s victory in the US presidential election created a huge wave of shock and awe, pushing global equity markets sharply lower, although most had regained a little composure by the end of the day. Emerging market currencies—led by the Mexican peso—also swooned, although, here too, all of them (except the peso) have recovered most of their losses. (The rupee was an outlier, strengthening a bit on the other loud event of this week—Modi’s demonetisation of the currency.) The Euro and the yen worked the other way—at first, they strengthened but then slipped and are currently running a little weaker against the dollar than before the election.
The important question, of course, is where do things go from here?
Well, the first thing is to recognise that president-elect Trump appears to be a different human being from candidate Trump, except, of course, for his modest vocabulary of superlatives. Significantly, however, in his acceptance (of Hillary’s concession) speech, he praised an unbelievably wide array of fantastic people, rather than simply himself. While this sort of positive change—from candidate to winner—is not unusual, we need to see how long it lasts.
The second important point is that president Trump will have a relatively free hand to express his strongest beliefs and convictions. The Republicans, many of whom shamelessly scampered back to his fold as the campaign ended, control both the House and the Senate, which gives him a rare opportunity to shape the future of the US (and, for better or worse, the world). Given the rhetoric of the campaign, this is horrifying to more than 50 million intellectual snobs, who share even modestly contemporary views on race, women’s rights, abortion, gun control, immigration and so on.
Our best hope is that extreme positioning on the stump very often translates into more nuanced policy, provided the leader is not particularly ideological. The good news is that if there’s one thing you can say for sure about Trump, it’s that he’s not ideological—he says (and does) what he feels like at the moment and, over the years, has reversed himself so many times on so many issues, it is amazing he knows which way is up.
While this kind of frequent flip-flopping will be terrible for markets, which are designed to respond to the most immediately recent babble, policymaking may end up being more sane. In fact, the one super-sane thing Trump said during the campaign was that if companies wanted to move jobs overseas to save costs, they were free to do that—America is a free country—except that they would have to pay 35% tax on any products they sold in the US. This is eminently sensible and points to a clear understanding of what currently afflicts US (and, indeed, the UK and, to a lesser extent, Europe).
He’s already shown that he’s no fool, so he knows that globalisation and trade are good—they make money. What is bad is that the gains from these are distributed ineffectively as a result of which there are some people buying paintings for $100 million while there are others (in West Virginia and Michigan and Pennsylvania and all the states he won) who are holding on to their beat-up 5-year old pick-up trucks. As a result, there’s no demand on the ground.
To kick-start growth, which he has promised to double loudly and often, Trump will immediately look to clean up US tax policy. He knows how it can be used—he said as much on the campaign trail—and doubtless understands how it can be changed to create more growth. He could cut income taxes at all levels (as promised) and balance it with increased taxes on capital-based income (capital gains, dividends, etc) and, of course, eliminate his favourite “carried interest” loophole.
While this may face resistance from many of the Republicans in the House, he can kill two birds with one stone by appointing Senator Elizabeth Warren as secretary of the treasury. On the one hand, she would be super at cleaning up the mess; on the other, it would also begin to heal the wounds he has so effortlessly inflicted on the Democrats and bring America together to ride into the glorious future he can see so clearly.
The author is CEO, Mecklai Financial