Going Long with Trump16/11/16
I think the opinion of many people is that right now, things aren’t looking that good both socially and politically. On the markets side of things however, it’s certainly been interesting. Markets dipped big time prior to, and immediately after, the United States election, before returning to their pre-election levels and above. Gold has come back down to a reasonable level, and the US dollar has regained stability. What that means, is that it isn’t doomsday just yet.
However, I’d like to look at how the US is likely to change in structure under a Trump presidency. Economies make the market, not the other way around. Although they can reflect possibilities, none of them are concrete. In 2008, no chart really predicted the huge crash that was to come. For the sake of neutrality, I’ll say that maybe the economy of the US will thrive under Trump. But maybe it won’t.
So when talking about structure, what do I mean? I’m talking about how the changes in government spending and private investment will affect the overall output of the US. As I mentioned in a previous article, I think Trump is going to promote domestic businesses and attempt to keep the bulk of company operations within the US. I think he’ll come down on businesses that look to move production and operations overseas and will work against the powers of globalisation.
This sounds great, and is probably what the US needs as people lose their jobs at the base levels of production. It’s also great that businesses will find it hard to exploit overseas loop holes in tax and labour regulations. Here’s the problem though; he’s actively spoken against the minimum wage. What’s the point in having a job, if the job isn’t paying you enough to live off? Corporate tax breaks are probably on the way as well, and unions will potentially see their powers decimated. So all in all, he’s really looking out for the big players – but managed to sound like he’ll be looking out for the working class man during his campaigning. Given a majority Republican house and senate, it is likely that any actions to balance such changes from the left will be unsuccessful.
In respect to trade, I think it is plain to see he’s not in favour of furthering relations with Mexico. Between the wall and his deportation plans, he seems to want to cut ties. With past speeches in mind, Russia and China seem to be at the top of his list to get close to, despite his back peddling on many occasions. What will this mean? I’m not sure how Russia will impact on the US economy, whether they plan on being a resource hub for the US or vice versa.
China on the other hand, I feel as though they will co-operate quiet interestingly with the US. China has been making strong progress towards a service based economy, while it feels as though the US wants to bring some of the more basic services, manufacturing for example, back home. For a long while, China has been trying to adopt a more free market approach to its government-business relation model. The US will be a good model as an extreme point of free market behaviour and results under Trump. China could very well become closer to the US to see what parts of a free market they need to regulate and what the results are of less interference.
Overall, I expect less Government expenditure on projects that aren’t based on infrastructure (wall-related or otherwise). He’ll do a lot for the upper lower class, so people skilled in manual labour and manufacturing, who are even lower middle in some cases. As mentioned though, this sounds great on paper but will only be enabled by deterioration of working conditions. He’ll most likely investigate deregulating a lot of the financial sector too. International relations will be interesting with a shift towards Russia and China and away from past partners such as Mexico. There are likely to be many parallels between Trump’s presidency and that of past president Ronald Reagan. So the winners are big businesses and Russia and China, and the losers will ironically be the lower and middle classes, along with Mexico.
This will be the last post for 2016, so until next year, this has been our Take.