Trump, plus ..... to affect us all

I WILL start my first column for 2017 with a statement of the bleeding obvious: for at least the next four years we will be living in a world made by Donald Trump, writes Terry McCrann.

People need to “get with the reality” of Donald Trump.

I WILL start my first column for 2017 with a statement of the bleeding obvious: for at least the next four years — hopefully, for eight — we will be living in a world made by Donald Trump.

I will then immediately qualify it: we will be living in a world made by Trump and China’s Xi Jinping. And also, by Germany’s Angela Merkel and the United Kingdom’s Theresa May. Although in Merkel’s case the “making” might be indirect.

First let me explain that “hopefully”. In simple terms, you do not want to be living in a world in which Trump became the first president since the hapless George H W Bush — that’s the more recent George’s father — not to win re-election, all of a quarter century ago in a very different and indeed distant world.

He lost, purportedly, because of those unfortunate campaign words, immediately but punishingly relevant only to Americans: “read my lips, no new taxes”. A president Trump losing in 2020 would almost certainly speak to a very unpleasant world relevant not just to Americans but also to us.

This is similar to my observations when interest rates were plunging to zero around the world and our Reserve Bank was resisting valiantly in following: as I wrote then, you sincerely did not want to see our rates also go to zero.

In sum and in short, those wishing for a Trump presidency to implode are wishing for the mother of all own goals. Believe me, you should sincerely want him to succeed.

The substantive point of my opening observations for the new year are broadly twofold.

First, as my colleague, Rita Panahi, wrote yesterday: no amount of marching, rioting etc etc is going to change the fact that Donald Trump is the 45th president of the US. And will be for (at least) four years, subject only to his replacement by his VP, Mike Pence in certain obvious circumstances.

So, in the words of the 1960s Dusty Springfield classic, all the “wishin’ and hopin’” ain’t going to change that reality. But the single-minded focus on the “Trump presidency” as if it’s the only thing that matters — either for good or for bad — is equally simplistic.

We, and especially us down here, now live in a bipolar world. What happens inside China, and increasingly, what China does on the world stage, matters almost as much as what the US does. Arguably, for us narrowly, as much.

It’s no longer the case that the US economy can drive the global economy. But as we saw in 2008 it clearly is the dominant influence on global capital markets. And that means your investments; your home loan rate.

Over the next few years — indeed, well into the next decade — this will be even more the case given the consequence of the GFC and even more the (global) policy response to it which we still have to live through and out.

Narrowly again, “this world” is going to be made by the actions of both the Trump administration and policy moves of the Yellen Fed — indeed of any Fed, when Yellen goes (at the latest, when she would not be reappointed when her term expires next January) — and again crucially, the interactions between them and the market reactions.

If the US is less influential in the global economy than it used to be, Europe and the UK are irrelevant.

They are not, though, irrelevant to global financial markets — the flow of credit; the health of banks, including our own; the rise and fall of stock markets.

THUS, whether or not the UK leaves the European Union, when it does and on what terms, is essentially irrelevant to the global economy and indeed even to us; but the dynamics of the process and even more the way capital flows and stock markets move, will have a huge impact.

Again, while the politics are largely irrelevant to the broader world, the way financial markets react will feed across the globe. So decisions made by May and — for Europe — by Merkel will also be creating the world in which we will be living over the next four years, if not quite as influentially as Trump and Xi.

From this distance May looks reasonably secure both within her party and in the parliament.

You can’t say the same about Merkel, after Brexit and Trump and indeed what she has personally wrought with her aggressive “open-door policy”.

Again, if she gets sacked either by party or people, while that wouldn’t have much impact on the global economy it would reverberate through global financial markets.

The most important thing is to understand not just that there will be other global players in addition to president Trump “making” the world in which we will be living, but how the intersections between all this plays out both in economic and financial market terms.

And so also, crucially, what the controllers of the tens of trillions of dollars of global investment money and loose cash desperately seeking either safety or yield do.

Right now, it’s pointless trying to “predict” what the Trump administration will do — actually, try to do. The simplest mistake to be made is to assume that because there are Republican majorities in both the Congress and the Senate, they will rubberstamp Trump’s agenda.

Individually and collectively, and indeed separately, they have their own.

There are two big instructions for us. First, we must accept the fact that we will have to adjust to what Trump et al throw at us — and markets reactions to that. Rather than wishing it was otherwise.

That message has not percolated through either political or bureaucratic Canberra.

On the very day that Trump won, Malcolm Turnbull rushed to ratify the Paris “climate” agreement, bizarrely hoping to persuade Trump to walk away from abandoning it.

And right now the government is still pushing the TPP trade deal, despite the fact that the one absolute post-Trump certainty we have is that it is “dead, buried and cremated”.

The second message is that broader one. The future is not going to be all about Trump. It is also going to be about Xi etc. It is also going to be, absolutely critically, how they all play off each other; and how markets do as well.

Despite our hubris which suggests otherwise — and the fortunes to be made convincing people that you have an ability otherwise — the future is always literally unpredictable. It’s now also more complicated.

We have to accept that our policy has to be derivative and responsive. It also has to be extraordinarily flexible. Take the easiest example — company tax.

We are still fighting over cutting the rate to 25 per cent, and over 10 years; actually, with precious little hope of shifting it from 30 per cent. Trump wants to take the US down to 15 per cent.

Even if he doesn’t get there, and he probably won’t, for goodness sake, Canberra — both sides and the bureaucrats too — are living in a pre-Trump universe (or a President Hillary one).

In sum and in short, Canberra — and everyone else — has to “get with the reality” — whatever it turns out to be; and be prepared to get with it flexibly and fast.

Originally published as Trump, plus ..... to affect us all