Trump may yet be a success

Missing signals could be damaging for investors

The largest source of disruption for global public investors – central banks, sovereign funds and public pension funds – over the past year has come from the White House. Donald Trump continues to amaze, enrage and confound with his actions and pronouncements. Trump is the first US president to break all the conventions. People think he is stupid as well as dangerous. Initial dislike at his election led to belief impeachment could quickly remove him. But he is still popular with the Republican party. I predict he will survive the 2018 midterm elections – and he has a good chance at re-election in 2020.

We have to look beneath the noise. When in 2017 Trump issued dire threats to Kim Jong-Un and the North Korean leader responded in like terms, many feared Trump was about to unleash a world war. But Trump knew the language that Kim would understand. This brings some hope for a breakthrough on the Korean peninsula.

Trump entered the White House complaining about the state of the US economy. Yet it is booming as it has not done in more than 10 years. Employment, especially among African-American workers, is demonstrably strong. Inflation is low. The stock market is still buoyant.

He must be doing something right. Missing the signals could be damaging. Trump may yet be a great success.

Trump’s deal-making is unconventional. People are used to transparent, almost linear approaches. Trump plays nonlinear games. He knows where he wants to go but does not take the direct route. His tariff conflict with China is an example. Until he became president the idea was that the US was to guarantee a liberal trading environment by its willingness to supply global public goods such as free movement across oceans and military security. Trump, by contrast, believes in a hub-and-spoke world, with the US as the hub. He sees the US as threatened by China’s challenge for the top spot. He wants to take on China in a bilateral tariff war, whatever the collateral damage.

Trump sees the world through the prism of bilateral relationships. He wants to renegotiate all the treaties and agreements signed before he took over, and thinks he can get a better deal.

He wants European members of the North Atlantic Treaty Organisation to pay their proper share towards defence, especially Germany. He suspects other countries have been free-riding on US benevolence. Trump wants US money back. He is seeking a deal or rather two bilateral deals, one with China and the other with the European Union. Wanting the US to be great again requires Trump to be a mercantilist.

Revoking Obama’s nuclear accord on Iran will affect the global economy as oil prices will rise. The EU does business with Iran. If US sanctions are reimposed, European countries will suffer.

The Sunni kingdoms of the Gulf region are urging Israel and the US to contain Iran. The Israeli-Saudi alliance could be what Trump has been encouraging. As in the Korean case, fear of war is in the air. I am reasonably confident that Trump can master a new dialogue in the Middle East. But it will be a bumpy ride. Global public investors must be uneasily aware that tweets from the White House will have as big an impact on their fortunes as the decisions of the Federal Reserve.

Lord (Meghnad) Desai is Emeritus Professor of Economics at the London School of Economics and Political Science, and Chair of the OMFIF Advisers Council.

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