Trump’s business cunning will define his administration

Trump will rely on tricks picked up during his wheeling and dealing days to transform the US and Wall Street loves it.

Donald Trump at a board meeting in New York City in August 1987. (Photo by Joe McNally/Getty Images)

We are now seeing President Trump in action and it’s becoming abundantly clear how he will transform the US and the world and Wall Street loves it.

Donald Trump is 70. He is going to apply the same techniques he used in business to the task of running America. So we need to remind ourselves of how he ran his business because that will help us make more sense of what he is doing in government.

Trump built his property empire on high levels of borrowing.

The global financial crisis devastated him. He moved into crisis mode and used the US bankruptcy laws to get him through. Then Trump grasped the power of the personal brand via the US TV program The Apprentice (Mark Bouris used a similar technique in Australia).

In the business of government, Trump will use similar techniques (he is brilliantly branding himself) but whereas in the business game the aim is to produce profits, Trump has replaced ‘profit’ with ‘voter benefit’.

This means he is already setting himself up to romp home two years away in the midterm US elections. Trump does not want to be another lame duck President in the second half of his term, as occurred with President Obama.

If the ‘voter benefit’ momentum continues, he’ll get the option of a second term. The ‘voter benefit’ in Trump’s world is jobs and higher incomes plus less crime. The wealth created and the new technologies employed in the re-industrialisation of the US will go on to produce lower emissions and other community benefits.

So, as in the Trump business empire, the government game starts with borrowing via what will be truly massive corporate and income tax cuts. Immediately, US families will see their incomes rise.

But, before that happens, the corporate tax cuts are paraded as a carrot to business, which he delivers personally company by company or industry by industry. And, so, he tells the three big US automakers: “start investing in US plants or you will get the stick of higher tariffs”.

They will come back to him with the detail on how it can be done and how to link it to other requirements like land power etc. That detail will help in extending the same offer to overseas motor makers.

The massive Apple supplier Foxconn was wooed in exactly the same way as the automakers — if you don’t invest heavily in a US plant then you will feel the lash of tariffs.

At the same time he brings in the unions and explains the strategy to them. The strategy is being applied to many companies including BHP who were encouraged to ramp up oil and gas production to make the US independent of the Middle East, which increasingly will become a Russian sphere of influence.

The carrot is always the same — low taxes, land, power plus infrastructure. For example, once the new plants are in the pipeline the US is going to need a lot of modern low emissions power stations and power lines. Enter public/private partnerships and probably DC electricity (US wakes from its infrastructure sleep to an emboldened China, January 24).

Trump wants a string of new projects opening over the next four years and he will want a big slab of them in two years’ time for the midterm elections. And those with spare cash abroad will get the carrot of low taxes and the stick of really nasty penalties if they don’t take the opportunity. The same technique will be used in the looming China negotiation, although that is much harder.

But remember the base building block is high borrowing by via massive tax cuts.

He will hope that high growth plus inflation will curb the overall impact of the borrowing.

On the spending side, in defence he will use a similar carrot and stick technique. Yes, the US will provide defence to Europe and Japan but only if they pay for it.

Whether he will drop the disastrous Joint Strike Fighter I don’t know but Lockheed Martin will need to offer a totally different deal to the rip-off game it has been playing.

The Washington waste swamp will be drained so there will be considerable savings. But despite these measures, the initial extra borrowing will be large because the tax cuts are large.

The idea is that the sheer growth in the US creates the wealth that reduces the borrowings.

And the inevitable higher interest rates that will come will boost the incomes of the self-funded retirees who, like those in Australia, are struggling.

What can go wrong? The first danger is that the corporations and countries refuse to play the game and Trump is forced to impose high tariffs and other nasties that will see ‘tit-for-tat’ reactions. The debts that are being created by the lower taxes will therefore not be serviced.

Similarly, the emergence of a major disturbance in the global banking system, probably created in Europe, could also cause problems. Remember that’s what killed Trumps pre-GFC empire. Finally, a major war — probably with China over the South China Sea — would be devastating.

In Australia, our governments could have done exactly the same thing. If Trump’s policy works then they may be forced to follow suit.

For Australians, the Prime Minister who best used some of the Trump techniques was Bob Hawke but Bob used them in a different way and for different results.