Now who will be Trumped?
17 December, 2016
As appeared in The Star Online
THE popular political parlour game running into the new year is what to expect from Donald Trump when he becomes United States President on Jan 20.
Not having expected him to be elected in the first place, the immediate reaction was calamity, calamity. Then an early dawn of hope that what is promised or threatened in a long presidential campaign is not or cannot be carried out in the cold light of day. After that, as the President-elect made his proposed Cabinet appointments and held court as no incoming President has done before, the mood swung back to despair.
What is constant is Trump will change things. It is the one clear message, not only in his presidential campaign but also in the book which is his statement of intent: Crippled America, How to Make America Great Again. Conventional wisdom is out. The establishment have failed and must be replaced.
The one thing he will definitely do in 2017 is to try to achieve for America an economic growth rate of 3.5%. The trend line is at 2%. Equity markets shot up in expectation of the boost to growth he promises through tax cuts and infrastructure spending.
The dollar strengthened. Bond yields rose in expectation of higher interest rates. This week the Fed raised rates by 25 basis points for only the second time since the Western financial crisis of 2008. It signaled three further increases of 25 basis points each time in 2017, indicating the job market had tightened and there will be increased inflationary pressure.
It would indeed be a changed situation from recent years of low interest rates and low growth expectations, of US monetary easing that did not quite achieve domestic investment, and of financial outflows looking for better returns elsewhere.
The flowback to America is what Trump wants. It is already happening as outflows become inflows looking for capital gains from an expected rise in corporate earnings in a growing economy.
However, encouraging though these reverse flows may be to Trump, and even if all of the US$2 trillion reportedly stashed abroad by American companies comes back onshore by some means or other, they will all be barely sufficient to finance the kind of American economic growth he wishes to achieve.
Conventional economists are already saying what they have dubbed Trumponomics – tax cuts, infrastructure spending, greater economic growth – will not be sustainable unless Trump also works to address the inevitable widening budget deficit by improving the domestic savings rate and by reducing reliance on foreign savings.
They also foresee appreciation of the dollar – and depreciation of the yuan and other emerging economy currencies – deepening the US current account deficit. So Trump, they argue, must additionally work to promote exports and a stable dollar.
Trump has said nothing about improving the savings rate, about reducing reliance on foreign savings, about promoting exports or about a stable dollar. It would seem that, to him, these are an afterword. It would seem he wants to jack up growth, the dollar, and even the deficit first. He might let it run for as long as possible and risk the consequences for, not just America, but the rest of the world, to face afterwards.
This is just speculation on my part. Assuming there is some fear or suspicion this may be the case, how are the American twin deficits going to be financed? How are holders of dollar reserves going to feel? Will China quietly accept the diminution in value of the dollars it holds when Trumponomics runs its course, planned or unplanned?
The certainty of Trump’s drive for economic growth therefore carries with it grave uncertainties about its consequences, the way he is pursuing it. It is a cause of concern. He owes it to the rest of the world to explain how he is going to pull it off without harming them.
Maybe he does not care. He wants the rest of the world to fall in line and take a hit as he feels “crippled America” has. Loss of jobs, markets, of influence, of face. It’s their turn. His protectionism is only the more evident part. There is a deeper plot. The empire is striking back.
Flirtation
If this were to be the case, the broader Trump attitude towards China begins to make sense. The flirtation with Taiwan is just meant to irritate China. There is more to come. This is the other near certainty of what would likely take place with Trump as US President in 2017 – a realignment of relations with China.
America will become more assertive (as many, including of course in the US, have said China has been) and less accommodating (as, it is contended, accommodating China has not been).
While economic and trade relations will take centre stage in the strategic altercation with China, there are also likely to be probing tests, such as in the East and South China Seas. Trump will not be overwhelmed by China’s repeated expressions of its “core interests.” He will counter with America’s own assertion of its immoveable superpower rights.
It would make for a more difficult time for Asean states that might have got too close to China. Trump is not likely to be too subtle. He has been described as being transactional.
The next step up from transactional is linkage politics. I would expect America to become heavy hitters again and this would turn on its head the kind of hedging game some Asean states have been playing. Trump would have no compunction about being the Ugly American.
It is being said Trump – especially with his choice of Rex Tillerson for Secretary of State – would be too accommodating of Putin. This may be so – but only because Russia is less of a challenge to America than China is. Little concessions will have inversely positive results. With China, he feels, concessions lead to greater demands.
He seems to belong to the school in America which believes the US has been too accommodating of China’s rise. Trump is likely to be less apologetic if China feels the US is in its way.
Thus, even if the emphasis of President Donald Trump will be to make America great again primarily through boosting its economy, there will be repercussions to the rest of the world because of the size of that economy, the primacy of the dollar and global interdependence.
And, even if his instinct is not to have America over-involved all over the world, the sheer size and significance of China is drawing him out and leading him to make an early stand to cut it down to size.
It remains to be seen how far he will go. Trump cannot just push China around.
But it does seem he feels the US has been pushed around and taken advantage of, a situation he clearly wants to correct. There might well be a new turn in the region.
Tan Sri Dr Munir Majid, chairman of Bank Muamalat and visiting senior fellow at LSE Ideas (Centre for International Affairs, Diplomacy and Strategy), is also chairman of CIMB Asean Research Institute.