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What now for Uncle Sam?

Almost a year on since the shock election win of Donald Trump, the United States remains in a holding pattern, with its economy rolling along as usual and the president’s attempts to pass more radical policies being frustrated. James Rampton takes the pulse of the nation

It is a peaceful Sunday morning, and I am riding along one of many miles of gorgeous cycle paths on the outskirts of Columbus, Ohio. The sun beats down as I roll past tranquil woods and lakes. It’s like acting out a passage from The Adventures of Huckleberry Finn. On this glorious day in the heartland of America, all seems right with the US.

Except that it clearly is not.

Meeting many people on both sides of the political fence during my visit to the States, I find a country that is divided to a degree that we have not seen since the civil rights era – a divide that goes all the way to Washington. And there is just one cause behind this Grand Canyon-sized chasm in American society: President Donald Trump. His rise to power has reportedly even pushed one couple in Florida to divorce over their profound differences of opinion about him. Has there ever been a more divisive figure in the White House?

As the first anniversary of Trump’s election approaches, these fissures prompt a crucial question: what effect is his presidency going to have on the US economy – and, by extension, the global economy? When they come to vote in the next presidential election, citizens will have one issue at the forefront of their minds: ‘It’s the economy, stupid.’

Named after the man who discovered the country for the Europeans, Columbus is often regarded as an archetypal Middle American city. A furnishings company there even carries the apt name of ‘Built in Middle America’. The city is a burgeoning business powerhouse. Forbes awarded Columbus an ‘A’ rating as one of the top cities for business in the US and named it as the most up-and-coming tech city in the nation. With its high proportion of students and graduates, it is no surprise to learn that in 2013 the Intelligent Communities Forum rated Columbus ‘the most intelligent city in the United States’. So it’s a good place to start my journey of discovery about the US economy. Along the way, I’ll be chatting to people who represent different sectors and have an acute insight into what makes the US economy tick.

Anna Ramsden greets me at her home in Columbus. She is typical of those who are anxious about the impact the major rupture occasioned by Trump’s election is having on US society. The co-founder of a consultancy specialising in the recruitment of advertising and marketing executives – key drivers of the modern US economy – she reveals: ‘People actively avoid talking about politics now because they feel so strongly about it and are worried things might blow up. It has even created some distance between me and family members. At first, we tiptoed around the subject, but now we have decided it’s better to avoid the subject completely.’

Having said that, Wall Street has not taken fright yet at what might delicately be called Trump’s ‘character flaws’. The Dow Jones has hit record highs this year. So the market is still buoyant, bolstered by campaign promises of tax reform and massive infrastructure spending. Business and consumer confidence are still reasonably strong, and the US dollar has not slumped, as some feared it might.

Yes, the US national debt remains eye-watering (it has topped $20 trillion) and the difficulty of servicing it threatens to shut down the government. But for all that, the figure is a lower proportion of its GDP than Japan’s or Italy’s. So, for the time being, the US economy looks relatively healthy. And yet the economic signs for the future are not altogether promising. The jobless figures are holding steady, but it has to be remembered that Trump inherited a favourable position when he arrived in office – unemployment was at its lowest point since before the financial crisis of 2008. Also, wage growth is slow.

 

A lot, therefore, is now hanging on Trump’s tax reform pledges. Chris Nagle from Pennsylvania is associate director of a business advisory company and was previously COO and CFO for a $1.5 billion group of hedge fund-of-funds. He works in the sort of area that will be required to thrive if the US is to boom again. ‘Trump has to reform the tax codes,’ says Nagle. ‘If that isn’t done, then the Republicans have a good chance of losing their majority in Congress in the midterms next year. Then they will be utterly ineffective.

‘Trump’s idea of making America great again is kooky. We’re not going to be great again – it’s not the 1950s. But what could help is evidence of a sound fiscal policy.’

For her part, Ramsden is yet to be convinced that tax reform is the answer. ‘On the economic front, all Trump’s programmes are based on tax cuts for the wealthy,’ she says. ‘The idea is that will trickle down to the less wealthy, but I’m not sure that has ever happened.’ A recent IMF report certainly does not look positive. It revises down its forecast for US growth in 2018 from 2.5 per cent to 2.1 per cent.

As the Rust Belt has, well, rusted, the IT industry has been one of the sectors that has saved America from economic decline. The stellar performance of the so-called FANG (Facebook, Amazon, Netflix, Google) quartet has helped power the Dow Jones. So IT industry analyst Jeff Mann from Atlanta is well placed to comment. He spells out some of the other threats: ‘If there is an economic or safety disaster brought about by lack of regulation or a war with North Korea, that could cause major economic disruption. Big events have big effects. That could certainly happen.’

It is impossible to rule out cataclysmic incidents because this president is so combustible. The thought that it is Trump’s finger on the nuclear button may well precipitate fits of the jitters on Wall Street, as well as Pyongyang. After all, the markets hate nothing so much as unpredictability.

John Marks, who lives in New York, has made documentaries about geopolitical issues and is the author of novels such as War Torn and The Wall. He points out another factor that could undermine market solidity: ‘The investigation into Russian interference in the presidential election continues, and it won’t go away. That offers great potential for instability and a resulting loss of confidence in the US as a place to do business. If anything gives Wall Street night sweats and makes them wake up at three in the morning, it is the thought that this administration will turn into a slow-motion disaster. With a Republican Congress, it’s not likely that it will end in the impeachment, but who knows how it will end?’

Other voices are less pessimistic. They say that it was precisely this disruptive, rowdy, anti-Establishment persona that propelled Trump to the White House. His supporters believe that power has lain in the hands of the omnipotent Deep State for way too long.

Prefacing his remarks by laughing – ‘I don’t think you’ll like what I have to say’ – Nagle explains why he voted for Trump. ‘When he announced he was standing, I had no reaction. But everything changed early on in the debates when he started to get rough-and-tumble and behave well outside the norms of public conduct. When he began to whack mainstream political views and say, “Look at the hole the government has put us in,” I started to take a serious interest. He kept saying that we need to take down the Establishment in Washington, and that’s ultimately what made me vote for him. He’s far more anti-Washington than any other Republican candidate or Hillary Clinton, who was the ultimate Establishment candidate.’

Nagle goes on to outline what he feels is wrong with the political mainstream in the US. ‘It’s very heavily corrupt,’ he says. ‘They all have their hands in the cookie jar. If you’re not inside the system, you are in deep trouble. Do I regret voting for Trump? No. I don’t think a mild-mannered Republican would have beaten Hillary Clinton. It took someone as transformative as Trump to win.’

Trump might not be first choice, Nagle says, but he was the only person ‘who addressed anything like the root cause of America’s problems, which is the fractured economy. It is absolutely toast’.

The other field in which the president has made promises is deregulation. Might his pledge to shrink government help liberate the economy? Mann, for one, is not persuaded. ‘Trump is the id of the Republican Party,’ the IT analyst reflects. ‘He will actually do the outrageous things they have been talking about but never thought possible. He cuts regulations across the board – slash, slash, slash. That’s what a lot of Republicans have wanted to do for the longest time. There is no one holding Trump back – that’s what I mean by him being the id of the Republican Party.’

In this, adds Mann, ‘He represents a fundamentally different view of government from the Democrats. Right-wing conservatives see anything to do with the government as evil. They’re against clean air regulation, not because they’re against clean air, but because they’re against regulation.’

Trump has also, ahem, trumpeted his belief in an ‘America First’ policy, seeing this as a way to outwit his fiercest rival, China, which is predicted to overtake the US economy by 2027. Ge hopes to avoid falling into ‘Thucydides’ Trap’, in which a rising power challenges a hegemon. But many believe that this isolationist approach will not benefit US trade. In fact, if Trump undermines relationships with China, which has been the motor behind global growth over the past 20 years, that could seriously stultify the economy.

‘From my point of view,’ says Mann, ‘his trade policy shows the emptiness of Trump’s ideas. I remember from my economics classes at university the idea of beggar thy neighbour. It’s a classic mistake that never works. Trump says the fact that there are factories in Mexico is a bad thing, but if you drive Mexico into poverty, America is not going to become great again. It will simply push Mexico into mass emigration.

‘Trump’s a realtor, and his book is called The Art of the Deal. In a real-estate deal, it’s a zero-sum game – one side wins and the other loses. He has a very simplistic idea of international trade as a zero-sum game, but that’s not the way it works. That’s the danger of having a businessman as president.’

Most of Trump’s boasts during the election campaign – from repealing Obamacare to the Muslim immigration ban – have foundered in Congress or the courts. One of the few things he has managed to ram through is a 10 per cent increase in military spending. But here, even his supporters are sceptical. ‘Forgive me,’ remarks Nagle, ‘but isn’t our military gigantic already? It’s five times bigger than the next largest army. For every tax dollar, 53 cents go towards the military-industrial complex. We don’t need to add to that.’

So the heart of the matter remains: can Trump’s buccaneering style really boost the US economy? The worry is that a combination of a failure to push tax reform through and his volatility will spook investors and trigger a fear-induced bear market. The contagion could then spread, prompting a negative-wealth effect and damaging the dollar.

Even the security of government bonds, which have thus far largely remained impervious to the Trump effect, could be jeopardised. An expert source from the investment world, who has 30 years’ experience of US markets, is cautious about their medium-term prospects. ‘We’re at a tricky point where Janet Yellen, chair of the Federal Reserve, is tightening monetary policy because the US economy is reasonably strong,’ he explains, speaking on condition of anonymity. ‘She is trying to bring quantitative easing to an end. But that is a delicate operation because she doesn’t know if that will cause another “taper tantrum” in the bond market.’

Of course, predicting the economic future is a mug’s game. Any politician’s plans can be derailed by unforeseen circumstances. Which means that even Trump’s supporters are not overflowing with optimism. ‘Can Trump transform the American economy?’ Nagle wonders. ‘That’s tough. It’s so moribund and ridiculous. It’s like trying to raise the Titanic. Trump has good intentions. He recognises that the cards are really, really stacked against him. So he will have to play around the edges and take what he can.’

Marks, though, perceives a more existential threat to the US economy. ‘The gulf between people is growing at a frightening pace,’ he says, citing Pankaj Mishra’s book, Age of Anger, which says there is worldwide movement of discontent. ‘In the US, a lot of very angry people have decided that the system isn’t serving them any more. So when they see Trump, they think, “At last we have found someone who speaks our language and will halt all this change that is hurting us.” We have seen the same sentiment with Brexit and with the Hindu nationalism movement in India. People feel their world is falling apart and want someone who will punch back on their behalf. That’s what Trump does.’

My investment expert closes on an open-ended note. ‘So far, the markets have proved immune to Trump’s nonsense. The stats are still OK. But it’s perfectly possible that he could cause geopolitical trouble and affect business confidence that way. After all, you can’t predict anything with Trump.’ And for that reason alone, if I were a dollar billionaire, I might be tempted to take all my cash out of the bank, convert it into gold and hide it under my bed immediately.

Uncle Sam has walked the tightrope of Trump so far, but how much longer can it last? If and when the protagonists of the age of rage realise that he is not making a difference, will the whole house of cards collapse? In the end, it may all come down to Trump’s ability to respond to the new rallying-cry of his supporters: ‘It’s the tax reforms, stupid.’

This feature first appeared in the November/December edition of Spear’s, available at selected newsagents, or subscribe to Spear’s magazine at https://www.spearswms.com/subscribe/