Thoughts on Donald Trump’s “America First”

“Protection will lead to great prosperity and strength” – Donald Trump

Donald Trump has many people worried. For whatever Trump may have said to win the election, nobody is really sure what he stands for. The celebrity billionaire is new to politics, something which makes him a huge unknown.

Therefore, on Friday the world looked to Trump’s inauguration speech (see link) with much anticipation for signs of what might lie ahead over the next four years. It is fair to say that the protectionist rhetoric which defined the speech has sparked concerns about the direction of US policy under a Donald Trump presidency.

“America first” in a protectionist world

Certainly, the new President of the United States has made his position crystal clear with his promise of “America first”. But is this any different to any other US President? America – rather the United States of America, since America is a continent not a country – always puts itself first. They are the world’s only superpower for a reason.

Trump reaffirmed that “Together, we will determine the course of America and the world for many, many years to come.” The US has always tried to define the direction of the world order, protecting their free market capitalist ideals, with military force when needed.

Still, while the US has always put itself first they have done so within a world order which has promoted free trade, the exporting of globalisation with American corporations colonising new territory. Globalisation has played a big role in economic development since 1980, as countries moved away from protectionist policies and became more integrated in the global economy.

However, while the US still wishes to project its ideals on other countries, Trump appears to have dramatically shifted from this outward policy of globalisation.

Income inequality has been the most negative by-product of globalisation with gains unevenly distributed. As Deutche Bank recently pointed out “globalisation has been increasingly divisive at a national level with big winners and losers within individual country borders”. The report (Annual Long-Term Asset Return Study) shows that labour’s share of GDP has fallen over the period 1980-2015 and real wage growth has “stalled”.

Donald Trump seized on the discontent of those many aggrieved Americans that feel left behind by globalisation. It was an easy story to peddle, even though the issue of globalisation is a complex debate with many facets.

“From this day forward, it’s going to be only America first, America first. Every decision on trade, on taxes, on immigration, on foreign affairs will be made to benefit American workers and American families. We must protect our borders from the ravages of other countries making our product, stealing our companies and destroying our jobs.”

Trump’s speech was a rally call for his supporters who believe he can rejuvenate the US with a more protectionist economic policy. Not only more jobs, but higher quality and higher paying jobs. It sounds great for Americans, but how will he achieve it? Is lowering US corporate tax rates and imposing tariffs really going to create a wave of high paying jobs and contribute to a fairer distribution of wealth? It will be ironic if it is the billionaire who changes the system for the better.

“Make America Great Again!”

“Make America Great Again!” is a catchy slogan but what does that really mean?

• Is a Great America a nation that reaffirms its dominance in the world motivated by self-interest, power and the almighty dollar?
• Is a Great America a nation that sets the standard for tackling inequality? Currently, the top one-tenth of one percent owns almost as much wealth as the bottom 90 percent.
• Is a Great America one that promotes basic rights such as food, shelter, education and healthcare for every citizen? In 2015, there were 43.1 million people in poverty in the US, according to the US Census Bureau.
• Does a Great America stop locking up their people? Think about the fact the US has 5% of the world’s population but they have an estimated 25% of the world’s prison population. The land of the free!
• Surely a Great America is one that leads the world in tackling the bigger issues such as climate change, promoting peace and halting the nuclear arms race? The US spent $598 billion on military spending in 2015, accounting for almost 38% of global military spending, according to the Military Balance 2016 report released by the International Institute for Strategic Studies.

Whether you like him or not these are the issues that Donald Trump should be judged on over the next four years. Those who are outraged by the election of Donald Trump must realise that it is the failing of previous governments which has made this moment possible. Barrack Obama was elected on a wave of optimism that real change was coming; he was far more inspiring than Donald Trump, an orator of the highest standard. Yet, beyond being a personable President, it is hard to argue that Obama affected real change. In fact, one could argue that his biggest failing is the election of Trump by not building a more inclusive society.

As for the impact on markets, opinion remains divided. Since his victory in the November 8^th election, equity markets have rallied on speculation of lower corporate taxes, relaxed regulation and infrastructure spending. However, the free market capitalists would not be happy to see the world’s most capitalist nation revert to protectionist policies.

Two billionaires divided on Trump effect

Bill Ackman, the founder and CEO of Pershing Square Capital Management LP, a hedge-fund management company, remains bullish on the outlook for the US economy under Donald Trump. In a presentation last week Ackman said he is convinced that ‘Donald Trump will be very good on the economic side’ and he believes 4% GDP growth is possible for the US economy. ‘It is a bullish development from an investment perspective. Donald Trump is CEO of the biggest business in the world, America’.

Ackman expects corporate taxes to be cut significantly, the implementation of a massive infrastructure program and a more business friendly commercial environment in general. Already, the hedge fund manager has seen business confidence pick up and the CEOs he is talking to are more confident about the economic outlook. However, Ackman did caveat his view with the threat to trade if Trump followed through on his protectionist rhetoric.

Meanwhile, another billionaire, George Soros, the chairman of Soros Fund Management, has called Donald Trump a “con man” and is much less optimistic on Trump’s cabinet. Asked whether Trump would divide or unite America, Soros said “Obviously he will divide because he considers that he embodies the will of the people and therefore anyone who disagrees with him is not really the people”.

“He stands for a government that is the opposite of a free market system”. So far, Soros has been on the wrong side of the Trump rally but he remains adamant that Donald Trump will not be good for the markets. “I don’t think the markets are going to do very well. Right now they’re still celebrating. But when reality comes, it will prevail.” (See full interview: A Conversation with George Soros at Davos 2017)

European Central Bank President Mario Draghi gave the best response on Donald Trump’s comments to date: “Let’s see what the real policies are following these statements. I’d rather comment on policies and policy actions than just statements.” Until then, it really is just speculation.