Brace for change: Trump’s three hidden messages

President Trump has signalled the money markets, the greens and China about what to expect from his first 200 days.

US President Donald Trump delivers a speech during his swearing-in ceremony on January 20, 2017 at the US Capitol in Washington, DC. (AFP PHOTO/Mandel Ngan)

There were three hidden longer-term messages in the unprecedented inaugural speech of President Donald Trump. The messages were aimed at money markets, the greens and China.

As I will explain below, the President’s first 200 days will reverse a vast number of previous American policies.

To the money markets, the message is that if his aims are achieved and operate as expected then it will result in large investments in the US that will lift the US dollar, but the capital demand and economic activity will also end the era of extreme low interest rates. Of course, if the Trump policies do not work the reverse will take place — the US dollar will slump and interest rates will fall.

To the greens, he vowed to “harness the energies, industries and technologies of tomorrow”. Tomorrow’s new energy sources will involve far less combustion and carbon emissions. Under Trump, the carbon reduction process will take place via new technologies rather than the destruction of jobs favoured by the politically correct.

And to China, Trump is about starting the process of restoring respect for the US. Respect is deeply embedded in Chinese culture and China lost respect for the US when the Americans allowed their industrial base to be decimated albeit by the Chinese (and Mexicans); their poor strategies in the Middle East and by abandoning the F22 fighter jet production in favour of moves that boosted the profits of Lockheed Martin.

One message that was not hidden was the proposed dramatic rise in US infrastructure spending, It will take time to engineer, but will drive the US in the final years of the Trump administration. But the migration, taxes and trade revolution will happen faster than most forecasters predict. Trump has built around him a remarkable team and they are dedicated to his vision and are not there to muck around like our politicians.

So here is what I think will happen in the first 200 days of Trump:

• He will put overseas suppliers on notice that tariffs on key industrial goods are going to rise and rise steeply. So start building plants in the US or face the consequences. And because the technology has changed, these new plants will not be labour intensive and the US will build the most efficient and modern industrial base on earth. The jobs will be created around that base, not simply in the base. The revolution will need a lot of commodities. Energy investment will be enormous.

• To finance its industrial revolution, Trump will lower US taxes, both corporate and personal, so encouraging Americans to bring their money back home. My guess is that there will be an amnesty for past sins.

• He will tell Germany, France, Britain and Italy that they will have to bear a much greater share of the cost of NATO. Germany and France will need to decide what they really need to defend. The Brussels swamp may be drained and the French will put France first and the Germans Germany first, etc. Whichever way it goes, Europe is going to be fundamentally changed.

But Trump will give the same message to Japan and possibly Australia, although we simply waste too much of our equipment expenditure. We desperately need a defence industrial base.

• There will be a rise in US inflation because of the avalanche of investment, but the higher US dollar, the new technologies and the fact that Trump is planning the most efficient flexible and well-rewarded workforce on earth will curb inflation. Trump plans to let independent contractors enjoy the same rates as companies. He will attract the best talent from around the world, which will multiply the job creation. This is all about bringing benefits to the people.

As Australians we can only hope that our politicians stop pretending Donald Trump is a bad dream. He is now the 45th president of the largest country on earth. And he told Australians how we must deal with his new administration: “From this day forward it is going to be America First”. Every decision on trade, taxes immigration and foreign affairs will be made to benefit American workers and American families.

When the world’s largest country embarks on a protectionist course, then globalisation, as we once knew it, is dead. The Chinese and Japanese who bought our iron ore, gas and coal and used it to make products to sell to the US will have to adopt new strategies to gain long-term access to the US market and create jobs for their own people. Mexico, Canada and Europe will have to do the same thing. And so will Australia.

I suggest our Canberra swamp is far worse than that of Washington. Our top public servants lined their pockets in the old public service pension scheme. Too many politicians copied them. At the same time the Canberra elite were advocating destruction of our industries and private sector employment. While that is unfair, it is the way it looks to vast areas of Australia — the political elite never understood that the benefits of globalisation were not uniformly spread around.

In the US the people revolted. But what happened in Canberra and Washington was duplicated around the world. If President Trump can find a way to drain the Washington swamp and not replace it with a worse swamp, then it will inspire people not just in Australia but also in the countries of Europe to do likewise. Brussels is worse than either Canberra or Washington.

What should our strategy be? First I would pick, say, the five policies that Donald Trump might introduce that affects Australia. But we need to think about exporting iron ore to the US or certainly helping some of our customers in China and Japan tailor their operations so final processing is in the US — in other words US trade must be sold so it is in the best interests of the US.

We will need to be ready to show Trump’s people that our US free-trade agreement is in their interests.

And finally, and most importantly, longer term the era of low interest rates is over. We have camouflaged our deeper problems by leveraging our population to buy houses. Higher interest rates will make those people require better paying jobs and force the political elite to start thinking about the people.

But the good news is that the Trump revolution will take time so we can adjust.