Now that Donald Trump has managed — against the odds and much to the
chagrin of ‘war party’ loyalists — to become the Republican Party’s nominee
in the Presidential election to be held in November, it is worth considering
what a Trump presidency would mean. Here are some preliminary thoughts.
First, I expect that with the Primary campaign out of the way Trump will
start to downplay some of the most hare-brained ideas he has spouted to date,
such as building a giant wall along the US-Mexico border and banning all
Muslims from entering the US. It’s unlikely that these wildly foolish ideas
will ever be turned into actual policies, and in any case even if President
Trump tried to implement them it’s unlikely that he would obtain the required
parliamentary approval.
Second, I doubt that President Trump would go ahead with his threat to
implement hefty tariffs on imports from China, because I don’t think he is
stupid enough to believe that imposing such restrictions on international
trade could possibly benefit the US economy. My guess is that when he uttered
the protectionist nonsense he was pandering to voters who are struggling
economically and willing to believe that their problems could be quickly
fixed by someone capable of doing smart trade deals with other world leaders.
But if I am over-estimating his acumen and he genuinely believes what he is
saying on this matter, then President Trump would effectively be pushing for
similar trade barriers to the ones that helped make the Great Depression greater
than it would otherwise have been.
As an aside, just because someone relentlessly promotes himself as a great
deal-maker, doesn’t mean he actually is. Also, the problems facing the US
have almost nothing to do with poor deal-making in the past and could not be
solved by good deal-making in the future.
Third, I doubt that the result of the November Presidential election will
have a big effect on the US economy. The way things are shaping up, whoever
gets elected this November will end up presiding over a sluggish economy at
best and a severe recession at worst. This is baked into the cake due to what
the Fed and the government have already done.
Furthermore, both Trump and Clinton appear to be completely clueless
regarding the causes of the economic problems facing the US, which means that
economically-constructive policy changes are unlikely over the years
immediately ahead irrespective of the election result. For example, Trump has
expressed a liking for currency depreciation and artificially-low interest
rates, which means that he is a supporter of the Fed’s current course of
action even though he would prefer to have a Fed Chief who called
himself/herself a Republican. Trump has also said that he would leave the
major entitlement programs alone, even though these programs encompass tens
of trillions of dollars of unfunded liabilities.
Fourth, it currently isn’t clear that any major financial market will have
an advantage or disadvantage depending on who is victorious in November. For
example, regardless of who wins in November it’s likely that evidence of an inflation
problem will be more obvious during 2017-2018 than it is today, resulting in
higher bond yields (lower bond prices). For another example, how the stock
market performs from 2017 onward will depend to a larger extent on what
happens over the next 6 months than on the election result. In particular, a
decline in the S&P500 to below 1600 this year could set the stage for a
strong stock market thereafter. For a third example, gold is probably going
to be a good investment over the next few years due to the combination of
declining real interest rates, rising inflation expectations and problems in
the banking industry. This will be the case whether the President’s name is
Trump or Clinton.
Fifth, based on what has been said by the two candidates and on Hillary
Clinton’s actions during her long stretch as a Washington insider, every
advocate of peace should be hoping for a Trump victory in November. The
reason is that a vote for Clinton is a vote for the foreign-policy status
quo, which means a vote for more humanitarian disasters and strategic
blunders along the lines of the Iraq War, the destruction of Libya, the
aggressive deployment of predator drones that kill far more innocent people
than people who pose a genuine threat, the intervention in Ukraine that
needlessly and recklessly brought the US into conflict with Russia, the
inadvertent creation and arming of ISIS, and the haphazard bombing of Syria.
Based on what he has said on the campaign trail, a vote for Trump would be a
vote for foreign policy that was less concerned about regime change, less
eager to intervene militarily in the affairs of other countries, and
generally less offensive (in both meanings of the word).
Summing up, a Trump presidency would probably be a significant plus in the
area of foreign policy (considering the alternative), but there isn’t a good
reason to expect that the US economy and financial markets would fare any
better or worse under Trump than they would under Clinton. At least,
there isn’t a good reason yet.
