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Trump Will Make America What Again?

Published by Tavex in category Financial news on 15.05.2017
Gold price (XAU-EUR)
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Silver price (XAG-EUR)
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Kuzman Iliev, Brain Workshop Institute | Gold Newspaper No. 6 | 2017

After Donald Trump, America will never be the same again. For over a century, American society has never been more divided than on the day of the presidential elections — November 8, 2016. Thus, protests will mark the strawberry blond billionaire’s rule over the coming years.

The Trump phenomenon is already fact, and there are several objective reasons for its rise. The Left’s Progressives and the Neoconservatives had practically merged, bringing with them constant wars, stratospheric public debt, and cultural stagnation, while the so-called establishment complacently forgot the average American. The subsequent rebellion against the status quo and the elite left its mark on the ballot-boxes — to the horror of the mass media, the academic community, politicians, and Hollywood. Whether for good or ill — no one really knows — but it is a fact that the worrisome economic, political, and cultural realities of the moment brought Trump to power.

The Legacy

During his two terms, Obama doubled the national debt of the U.S., and today, it is 100% of GDP, or $20 trillion (Graph 3). Over 40 million Americans now receive food stamps from the government. Employment is at a 40-year low, meaning millions of American citizens are losing hope of ever joining the work force (Graph 4). The Federal Reserve has held interest rates at near zero for eight years now, though it is beginning to raise them cautiously — which means years on end of no clear signals for financial market investors, of wrong investments, and of mistakes swept under the carpet — for now.

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Trump’s Measures

Donald Trump sees himself as the CEO of a corporation. He will try to macro-manage the U.S. economy as if it were a large company. Trump’s recipe is typically Keynesian, and just what the English Lord recommended in times of crisis — tax removal as an incentive for investment, and government spending on infrastructure.

The problem is that managing a country has nothing to do with managing a company. In a company, there is a profit-loss correction mechanism, while a country is financed via the compulsory collection of taxes and, thus, acts less responsibly towards meager savings. Trump will never know whether the resources he intends to spend will not go to waste, or whether they could have been used more responsibly. So much for the infrastructure costs he promises — they will only result in greater government consumption, which undermines economic growth. And the reduction of taxes, without the clarity of spending cuts, can only mean deficits and new debt. Forecasters expect the new debt to grow by a quarter within the first term of this administration. On the other hand, tax cuts are certainly positive — previous administrations literally drove U.S. companies away with a record corporate tax of 35%, effectively reaching 39%. Trump plans to change this trend, and even if he fails to deliver the double cuts that he promised — any moves in this direction would be fresh air for American entrepreneurs.

Removing 75% of the stifling regulations would lend unimaginable impetus to economic progress, and after taking office, the new U.S. president immediately began signing executive orders to this effect.

These pro-business steps laid the foundation for the recent stock market records, as the psychological barrier of 20,000 points on the Dow Jones was overcome within months of his election. At the same time, clear signs of rising inflation and inflation expectations overseas will inevitably spell danger for the credit-driven boom in the financial markets — a rise in interest rates. For an economy so accustomed to low interest rates, even small increases threaten the tower of credit and, respectively, its weakest link — U.S. governmental debt.

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The Advisors

As a businessman, Trump knows what the business sector needs and whom to ask about it. The “Billionaires Club” is perhaps a more suitable name for what Trump defines as his “Strategic and Policy Forum.” It includes executives from major U.S. companies: J.P. Morgan CEO, Jamie Dimon; Black Rock Chairman, Laurence Fink; General Motors CEO, Mary Barra; Walt Disney CEO, Bob Yeager; WalMart President, Doug MacMillen; and Elon Musk — Executive Director of Tesla. The Forum Chairman is Stephen Schwarzman — Blackstone Group CFO. In any case, bureaucracy and harmful business regulations will face opposition. And whether these business moguls will be tempted to fence in the market for themselves with new restrictive recommendations and suggestions remains to be seen.

Trade Wars

In parallel with the healthy measures, Trump is also undertaking protectionist economic measures that will have both local and global consequences. Commercial tariffs in the double digits for Chinese, Mexican, or U.S. companies that outsource production will effectively be another tax on the American population — the goods coming to the U.S. market will be more expensive. There will be benefits, of course, to inefficient local producers, but to the detriment of consumers.

Trade wars, unfortunately, lead to geopolitical tension, to a deterioration in the dialogue between world leaders, and respectively, to international tension. In economic terms, such draconian measures are detrimental — the Smoot–Hawley Tariff, for example, exacerbated the Great Depression of the 1930s, and global trade collapsed by over 30 percent.

The blow dealt to the living standard of American consumers of cheap Chinese products will also come at an electoral price. Protests could grow exponentially — depending on what policies work best for the average American citizen.

Trade Agreements in Tatters

Since one of Trump’s first Executive Orders (EOs) was to withdraw the United States from the Trans-Pacific Partnership for free trade, a new precedent has been set. The same fate awaits TTIP; furthermore, NAFTA and other such bilateral agreements will have to be “repaired.” The beginning of the end can already be seen of global government agreements reached in favor of certain industries and having a highly protectionist and hidden character. The world is entering an era of “Party-to-Party” commercial agreements, which will mean more transparency and more citizen control over political arbitrariness. It is the supranational element and opaque negotiations in such structures that are largely to blame for the bad name that globalization has made for itself. One example of the new approach is the bilateral trade agreement that the U.S. and the U.K. will implement — a serious weapon in the hands of a British government that is attempting to negotiate the best possible conditions for when they leave the E.U. (the so-called Brexit).

America First

“America First” is a doctrine of international relations, which prevailed politically in the United States prior to World War I. It is also Trump’s winning campaign motto of 2016. What remains to be seen is whether and how it will be applied. Does it mean changing current foreign policy and saving the resources regularly spent on “the War on Terror” outside the U.S., or will it be implemented only via wild protectionism and an attack on free trade and foreign manufacturers? This is the most important question concerning the rest of the world regarding Trump’s presidency.

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Foreign Policy

Foreign policy is the foundation of the American political system and of the balance in international relations. Rex Tillerson was appointed Secretary of State and James Mattis Defense Secretary. Both are in favor of a tough stance against Russia and wish to reconsider the comparatively warmer relations the U.S. has recently had with Iran.

During the presidential campaign, Donald Trump declared he wanted dialogue with Russia — something his opponents used against him, making him look almost as if he were a Russian spy. The hysteria reached such grotesque dimensions that it was not even necessary for Trump to refute such allegations. Whatever threat Russia may pose to the U.S., the Russian Federation has but the GDP of Spain, and U.S. military budget is eight times greater than that of the Russian Federation and three times that of China. Thus, Trump’s call for dialogue between the empires should have been welcomed.

The first EOs of the latest U.S. president, however, raise important questions regarding global peace. Banning the citizens of seven predominantly Muslim countries from entry to the United States was no surprise. The real surprise was the exclusion of Saudi Arabia from that list, considering the fact that 15 out of the 19 terrorists of 9/11 were precisely Saudis. The country is also a major financial backer of the Sunni state of ISIS in the region, where Trump intends to fight more fiercely, removing Congress’s defense spending restrictions.

The request to move the U.S. embassy in Israel from Tel Aviv to Jerusalem is more of a symbolic act. The Israeli-Palestinian conflict is far from over, and Jerusalem is claimed by both sides. Moving the embassy would symbolize taking a side in the conflict, and would inevitably lead to increased anti-American sensibilities, both in the region at large and across Muslim communities in the U.S. and Europe, heightening the risk of radicalization domestically. Trump will obviously have a clear policy on who is “good” and who is “bad” in the Middle East and will certainly be, unlike Obama, a pro-Israel president.

Israel and Saudi Arabia have a mutual enemy — Shiite Iran. Not even having taken office yet, Trump already came out against the removal of the embargo on Iran, switching the country’s status from potential partner to indirect enemy.

Meanwhile, Congress has been initiating legislative initiatives to allow the president to use military force against the Shiite bastion in case nuclear agreements are violated in one form or another. And one of the first actions of General Michael Flynn — Trump’s National Security advisor — was to directly threaten Iran over the issue, clearly marking new divisive lines in the region. In view of the problematic intelligence information that reaches the highest levels of Washington — including information concerning certain non-existent weapons of mass destruction that prompted the 2003 invasion of Iraq — such signals can be very symbolic of what is coming.

However, what is most important to monitor is the establishment of the so-called “Security Zones” in Syria, about which Trump spoke even before he took the reins of the U.S. government. To these zones, he intends to send so-called “refugees.” However, to do so, billions of dollars and tens of thousands of U.S. troops will be needed to guard and control the processes. The considerable threat of an active terrorist cell forming under the protection and funding of the U.S. government is very much real.

Most frightening is the antagonism towards China by the U.S., whose most peaceful expression so far has been protectionist measures to be introduced in America against the Middle Kingdom. Tensions between the two geopolitical giants are unfortunately growing in the South China Sea, as well. Ever since the Vietnam War, the U.S. has had geopolitical interests in the region and has been trying to fend off attempts by China to annex several strategically important islands in the region.

Barely after his election, U.S. President Donald Trump phoned the President of Taiwan — in total conflict with the Washington’s current policy. This move infuriated China, which considers Taiwan a rogue province. So, this action on the part of Trump was unequivocal.

The Deep State

One of the great trials Donald Trump will face is the so-called Deep State’s resistance to him. National security services, public administrators, and institutions such as the Justice Department — all these invisible elites (which have as much power as the president does to implement different policies) stood up to Trump immediately, as they have never done before with any other newly-elected President. An FBI investigation into the Presidential Security Advisor over relations with Russia, the CIA’s contribution in spreading stories of election “fraud” and Russian intervention, and certain other high-profile moves made by representatives of the sector are certainly a clear request for problems in this area. Trump will either successfully impose his policy and replace the bureaucrats or, as a good businessman, he will find a compromise. In any case, his presidency has no need of such enemies.

Donald Trump came to power promising to reduce global tensions. He rebuked former presidents, who had spent about $6 trillion in the Middle East since 2001, accentuating that these resources should have been used domestically.

What his presidency is to contribute to the U.S. and the rest of the world remains to be seen. His first strategic moves in the fields of domestic and foreign policy are contradictory, and his aggressive policy towards China and Russia’s allies in the Middle East give us a reason to expect a “refreeze” between Moscow and Washington.

Will America become great again? — no one knows. What is left is the hope that, this time, a certain political law — that those who come to power only fulfill their most preposterous promises — will not work. Not this time. The stakes are too high.

Gold price (XAU-EUR)
1739,59 EUR/oz
  
+ 11,64 EUR
Silver price (XAG-EUR)
20,72 EUR/oz
  
+ 0,01 EUR

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