Like many political observers I was surprised by Donald Trump's
victory. I didn't expect him to win the Republican primary to begin
with. So in the coming weeks I'll be buying the first beer for a few of
my friends who rated the Donald's prospects of winning higher than I
did.
Not only was I wrong about Mr. Trump's victory, I was also wrong
about the outcome of the Brexit referendum this past June. Being wrong
twice on such big event leaves me wondering what I've misunderstood or
underestimated.
As a credit analyst and investment manager I also have to wonder
how this event will impact the global economy in the months and years
ahead.
For the record, I didn't vote for the Donald. I voted for the
Hillary. Growing up in New York I followed his career and grew to
dislike his business style, how successful his business was.
I detested his campaign rhetoric. The words that come to mind are
vulgar, sexist, racist and arrogant. Personality aside, I also believe
he doesn't have the skill set I want in a President.
Having said this, I believe he is intelligent and practical. What
he lacks in experience he can compensate for in his selection of staff
and cabinet. He leans toward economic liberalism and less government
intervention and regulation.
My guess is that his policies and his cabinet will reflect these
general principles. If this happens America's economy will continue to
improve and the lives of many Americans will be better.
I am optimistic he will bring smart, capable policy advisors and
cabinet members into the administration, manage them well, listen with
respect to Senate and House members on both sides of the aisle, he
stands a good chance to take the country in a good direction.
Hopefully he will conduct himself differently, better, as a
president than as real estate developer and as a political candidate.
I'd love to see him succeed as a president and do great things for
America.
My fear is that we'll have an embarrassment in the White House who
represents the worst things America can be rather than the best and
makes decisions that turn America into a country filled with hate,
violence, racism, sexism and everything else I heard come out of his
mouth on the campaign trail.
I'll be happy to settle for a neutral, boring, neither good nor
bad, President Trump whose presidency goes down in history as
unremarkable.
I've come to the view that neither of the victory of Brexit or the
election of Trump reflects some fundamental paradigm shift in the way
our world will function in the months and years ahead.
This is not to
say we should ignore them. Rather, we should put them in perspective for
what they are - clear signs that a rising proportion of the electorate
rightly or wrongly fees disenfranchised, unheard, frightened and
distrustful.
The victories of Donald Trump in the US and the Brexit campaign in
the UK reflect the ability of politicians to tap into that sentiment and
amplify its voice. In an open, democratic society these sort of
victories are healthy. They encourage debate and they force policy
makers to listen more closely to the needs of the population.
With this in mind, I highly 5 take-aways we can draw from Donald Trump's victory.
Take-Away Number 1 - Spending More Doesn't Win Elections
Recent campaign filings show spending on Hillary Clinton's campaign
was nearly US$700 mn, nearly 2.5 times the $250 mn. Donald Trump spent.
Consider the failed campaigns of Donald Trump's Republic rivals. Jeb
Bush's campaign spending was nearly $150 mn and he was one of the first
to drop off the campaign trail. Other big spenders were Florida senator
Marco Rubio ($150 mn) Ted Cruz ($130 mn) and Dr. Ben Carson ($80 mn).
Candidates can plaster the walls with posters and flood the
airwaves with commercials incessantly but the law of diminishing returns
is immutable. Preaching to the converted offers little value. People
grow tired of hearing the message and start tuning it out.
Take-Away Number 2 - There's a Big Gulf Between Rhetoric and Reality
Politicians compete not only by selling their view to the
electorate, but also by saying things the electorate wants to hear.
Campaigns are political theatre. After the election is over the winners
face the very real task of governing and confronting realities.
During the campaign many politicians cast Donald Trump as a
villain. He faced harsh criticism from within his own party and at times
the exchanges became vituperative and personnel. It was a disgusting
and vulgar chapter in America's political history.
Now we face a new world. The election is over. The Republicans who
control the House and Senate have a legislative agenda. Whatever
legislation they propose must be acceptable to the President and vice
versa.
The Republicans have a majority of just 1 in the Senate. Whatever
Mr. Trump said about Washington on the campaign trail, he will have to
work with his fellow politicians, be they Republican or Democrat or his
presidency will be weak and ineffective and he'll spend much of the next
four years convincing the electorate to send different politicians to
Washington.
Take-Away 3 - Trade Policy With a Big Stick
Trade and foreign policy are the areas where a president's
influence and powers are greatest. Mr. Trump has been an outspoken
critic of NAFTA and similar free trade agreements. He sees such deals as
an attack on US jobs and one of the reasons for the decline of
manufacturing in the US.
(image courtesy of canadafreepress.com)
When President Trump sits down to seriously study the history of
free trade agreements he will see that the North American Free Trade
Agreement (NAFTA), signed by President Clinton was negotiated
principally by the elder President George H.W. Bush and that when the
deal passed in Congress it enjoyed wide spread bi-partisan support.
Historically the Republican party has been the advocate of free trade.
He'll also find that since the passage of NAFTA nearly 25 years ago
the US has entered into 20 other free trade agreements under the
administrations of the younger President George W. Bush and the outgoing
President Obama.
He'll be pleased to know that the
Office of the Trade Representative has
evolved over the years to the point where it works on trade issues in
as cooperation with 19 other Federal Agencies. It has offices around the
world with a staff of 200 and 28 advisory committees taking input from
more than 700 private sector citizens. Depending on how you look at it
OTR either provides the real serious infrastructure needed to implement
and administer trade agreements or it is a beehive of lobbyists and
special interest groups.
Most importantly, when President Trump sits down to think about
America's trading policies he'll quickly realise that trade policy has
winners and losers on both sides of the fence and in both camps. It's
easy to point a finger and look at how many jobs left the US. But that's
only part of the story.
Another part of the story is that many of those jobs might have
left the US in any case, free trade agreement or not. Also, many of the
goods that Americans purchase cost less than they would otherwise in the
absence of a trade agreement. Finally, no discussion about the merits
of trade agreements is complete without looking at the jobs that are
created, the services that are exported and the earnings of the people
that fill those jobs.
Conventional wisdom is that NAFTA's days are now numbered and that
the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and
Investment Partnership (TTIP) will not go forward.
Nothing can further from the truth! More likely what will happen is
that Mr. Trump will quickly come to understand who in America loses and
who in America wins from each trade agreement. He'll look at how many
jobs can be created, how many jobs are likely to be lost. He'll look at
which industries are likely to suffer and which industries are likely to
prosper. He'll look at which goods and services are likely to be more
expensive and which are likely to be less expensive. He'll also
understand that he will have to work with those winners and losers in
the years to ahead and he'll calculate the impact all around including
that cost or gain to his presidency.
He'll have some long, tough negotiations with his trade
counterparts, which probably is a good thing. There will be political
theatre and strong statements from abroad as well as from the
President's domestic critics.
Behind the scenes there will be negotiating, more winners and
losers. One of Donald Trumps greatest strengths is that he well
understands negotiating processes, he understand how to posture and how
to present the positions.
In the end, he'll probably win some concessions, not as many as
he'd like, but some anyhow. Until we get closer to the reality how much
the net gains will be and who in America will win and who will lose is
difficult to say. In the end we may have the status quo.
The Donald we saw on the campaign trail painted with an incredibly
broad brush. All those jobs left America for reasons for more complex
and far more varied than NAFTA. Many of those jobs would have left with
or without a trade deal. Even if they had stayed, the cost might have
higher prices for those goods - transfers of wealth from consumers to
businesses. Or the factories that stayed might not have been able to
compete at all without tax breaks and government support - transfers of
wealth from the public purse to to private business - the sort of stuff
Republicans except when they are on the receiving end.
The key take-away from the election of Donald Trump is that we are
likely to see more criticism of the raft of trade agreements, followed
by tough, but firm negotiations aimed at actually getting to a deal
Donald Trump can present as a winning deal.
NAFTA, TTIP, TPP and the others should not be presumed dead.
Rather, they should be more appropriately thought of as patients waiting
to see the doctor and opportunities for President Trump to succeed.
Interestingly TTIP comes with a potentially interesting kettle of fish.
The EU will want to find a way to get to yes on TTIP at the same time as
the UK, on the verge of exiting the EU, potentially, will want to
develop a trading agreement.
Take-Away 4 - Wave Goodbye to ObamaCare? Not so fast!
President Trump has promised to "repeal and replace" the Affordable
Care Act (ACA), also known as ObamaCare. This act was passed at a time
when the Democrats controlled the house and Senate and could pass the
act without any Republican support. Since that day, whatever the merits
and the good intentions of the act are, it has become a source of
contention between both parties and a symbol of the divisiveness and
lack of bipartisan initiative in America.
Here we are back to the rhetoric versus the reality. Donald Trump's
rhetoric was to repeal and replace. Reality is that repeal without
something at the ready to replace could create much bigger problems. A
more likely outcome is that either the existing act will be amended or
the repeal and then the replacement will happen practically the same
day.
Millions of Americans now have healthcare access as a result of the
Affordable Care Act (ACA). Repeal without replacement for sure imposes
cost on those millions of now insured people, many of may be among his
supporters. Repeal without replacement also means all the rest of the
insureds will bear cost in terms of higher premiums. Repeal without
replacement will force hospitals and insurance companies to bear the
cost of treating the uninsureds. Repeal without replacement will be a
mess!
What I hope is that Congress will change its ugly ways, find a
bi-partisan solution to fix the ills of the ACA and make things better
in America all around. Whether that is done an amendment or repeal and
replace is irrelevant and unimportant.
America spends 17% of GDP on healthcare, nearly 2X what many other
countries around the world spend. I don't know whether we should blame
doctors, hospitals, insurance companies, pharmaceutical companies,
lawyers, regulators or the fact that so many Americans are uninsured or
underinsured. It's a collective and complex problem. Fixing the problem
means there will be winners and losers, all whom have strong lobbying
ability and influence in Washington.
Frankly speaking, I'm not a healthcare expert. What I can say with
certainty is that my wife and I are insured in the Czech Republic. I've
seen the kind of care we and our friends and my employees get in the
Czech Republic and elsewhere in Europe. I've seen the value we get for
our healthcare spend and I can honestly say I'd much rather get sick in
Prague than in New York.
Even our dog gets state of the art medical care for a fraction of what it would cost in the United States!
Take-Away 5 - Nothing Really Changed on the American Political Landscape
Donald Trump's victory defied conventional wisdom. He ran as an
outsider within the Republican Party and spent far less than his rivals.
He is socially quite liberal compared to his rivals. His rhetoric was
highly offensive to any reasonable person. And yet, the electorate
clearly forgave him for all of that.
During the campaign he laid claim to having begun a political
movement. It's hard to argue he really has changed anything in America.
He rightly recognised that his best chance at getting elected was to
present himself as an agent of change, a person who would challenge the
status quo and restore something that seems have been lost in amid the
complexities of a changing society. That message resounded loudly on the
electorate.
It's important to realise the America of today is much different
than the America we saw several decades ago. The population is
increasingly rapidly. It's estimated that over the next 30 years
population will grow by nearly 40% from present levels. Population
growth is fastest in the cities and there is a consistent migration to
the south and south west. Many towns twenty years ago were quiet
villages where everyone knew each other. America today is far more
culturally and ethnically diverse than it has been in the past and this
trend looks set to continue.
Sheila Suess Kennedy, J.D., Professor of Law and Public Policy in
the School of Public and Environmental Affairs at Indiana University
Purdue University at Indianapolis, wrote eloquently about this issue in a
post on
inequality.org. She pointed to American inequality,
the diminishing numbers of people who can be categorized as middle
class, and the widening gap between wealthy Americans and everyone else
and said that progressives (She blogs at www.sheilakennedy.net)
America is still the world's largest manufacturer, with output
exceed that of China and India combined. Still, at least one in every
six manufacturing jobs has left the country since 2000. Because
population tends to concentrate around manufacturing facilities, this
change has scarred many communities. Retraining is far easier said than
done. The landscape of rural America is filled with people that have
been left behind in world that changed around them.
The collapse of the financial sector in the wake of the sub-prime
mortgage crises exacerbated the problems. Drive through many cities and
towns in America and you'll see homes boarded up that were repossessed.
You'll see urban decay. You'll see gang violence. You'll see a
communities and police that don't trust each other. Add to this mix
terrorism, and a global refugee crisis.
It's therefore no wonder a large portion of the electorate sits up
and takes notice when a Donald Trump comes to town, speak to them in
terms they understand, points to their fears and insecurities and offers
them a solution. They feel Washington has abandoned them and they are
probably not far from the truth. Getting things done in Washington for
the good of the country is a tall order when Congress votes along party
lines and it seems nothing gets done at all.
Irrespective of whether or not Donald Trump really can deliver,
nearly half the electorate is ready to listen and desperate enough to
give him the chance.
Looking at the electoral maps and the election results over the
last few decades, there is little evidence than anything really changed
in the American political landscape at least since 2000, other than the arrival of savy
marketer adept at making his case in the media. Bill Clinton and Ronald Reagan changed the political map far more than many of their predecessors and certainly more than their successors. Note the following:
- Donald Trump didn't have a majority of the popular vote. In fact, Hillary Clinton polled 48.5% to Donald Trump's 47.9%.
- Nearly all the states that voted Democratic in the last several elections voted strongly for Hillary Clinton.
- Donald Trump's victory came from very thin victories in 3 states he managed to swing - Michigan, Wisconsin and Pennsylvania.
- It's arguable that Donald Trump's victory can be attributed to a
strategic failure on the part of the Clinton camp. While Trump was
wrapping up his campaign in Michigan, Wisconsin and Pennsylvania Hillary
Clinton was holding rallies in Florida and North Carolina, both states
that have large Republican populations and where she lost by wide
margins.
- Barrack Obama won with significantly strong majorities in both of
his campaigns. The electoral map was similar to what it was this year,
except that Mr. Obama captured Florida, Michigan and Wisconsin,
Pennsylvania and Iowa.
- George Bush defeated Al Gore in 2000. Like Donald Trump, Mr. Bush
lost the popular vote by a slim margin. Unlike Mr. Trump George Bush
won in Colorado and New Hampshire and lost in Michigan, Wisconsin and
Pennsylvania.
