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Despite his apparent racist, sexist and nationalist undertones, his inexperience in political office and his capacity to be ridiculed by any seemingly well-respected public figure, Donald J. Trump was elected President of the United States on November 9th 2016.
But, one of his more prominent accolades was his credibility as a real estate mogul. The American public, represented by 276 electoral votes trusted the Republican candidate with the helm of the American ship. Evidently, they believed a business-orientated individual was better suited to the role of the Presidency than one with the experience of Secretary of State.
So, can a nation be run like a business? Can a President be interchanged for a CEO?
From Hotels To The White House
If Trump was CEO of Trump Enterprises, his position could be paralleled to that of the CEO of America, where his trusted advisors are not his board members but the members of the West Wing, e.g. his Chief of Staff. As such his stakeholders are the US public, who stand to do well or not so well depending on how he performs in their interests. They have invested their vote and therefore confidence in his ability to deliver. His various policies, which he advertised throughout his campaign are, therefore, his products. And these will be analysed step by step in the following discussion.
Trump won because he understood his market – the anti-establishment, anti-globalisation and populist trend that has taken the world by storm. He appealed to these tendencies in a way that Hillary Clinton did not, and hence he won the majority of the market share to monopolise his power across the whole of America.
- Pro-growth tax plan
- Create a booming economy delivering 25 million new jobs
- Increasing GDP by 1.5% resulting in 18 million jobs
- Remove financial support from Obamacare
- New modern regulatory framework
- An America-First trade policy: 35% tax on Mexican imports and 45% tax on Chinese imports
- Build a wall between the US and Mexico
The Fed And The Markets
The initial reaction to a Trump victory was extreme market volatility, the likes of which has not been seen since Brexit. The stock markets went down, as did the Dollar and the Peso.
The price of gold, which climbed as Trump was announced President-Elect, has since fallen to a five-year low as investors were driven towards equity markets on Friday, following the announcement of tax cuts and infrastructure spending. The Dow Jones Industrial Average has since climbed to a record high and bond yields have risen across the globe. Italy’s ten-year debt climbed above 2% for the first time in 14 months according to Bloomberg. Markets will continue to fluctuate but could see lower long-term levels if investors feel that the uncertainty generated by the Republican candidate’s victory will harm growth and corporate profits. Once known to be the world’s safest asset, the prices for American bonds will now be volatile, as markets seek insurance against less risk.
Interest rates are typically out of the government’s control, as they are set by the US central bank. The Fed was expected to raise interest rates this December, after strong indicators from the American economy. However, if market volatility continues, which is likely, Yellen will keep rates low. Before his election, Trump called Yellen corrupt, “creating a false economy” by “keeping interest rates artificially low”. He argued that Yellen was involving herself in politics and vowed not to renegotiate her contract when it terminates in early 2018.
If Trump replaces Yellen with a Republican for Head of the Federal Reserve, he could push the rates in a more hawkish direction. Pursuing a looser monetary policy, by increasing spending and reducing taxes would require an interest rate hike. Raising rates before the economy is ready could spiral the American economy into a recession.
The Dodd-Frank is a regulatory regime that the Democrats passed through Congress in the aftermath of the 2008 financial crisis. But regulation has proved cumbersome for Wall Street and has hampered growth and profits for America’s most successful industry. Donald Trump said in May:
“Dodd-Frank either has to be eliminated or changed greatly”.
The Republican has gone further to add that he will cut all regulations massively. Trump has hinted at removing the contractionary Volcker Rule which could see the return of prop trading. He even criticised the CEOs of America’s largest banks for settling their charges with the government rather than fighting them. Donald Trump is not looking to break up America’s mega-banks; it was, in fact, Hillary Clinton who expressed a desire to use the Dodd-Frank to break up these banks if it appeared necessary.
Furthermore, Trump’s national finance chairman is Steven Mnuchin, a former Goldman Sachs employee. Other positions have been taken by the former Chief Executive of private equity giant Cerberus Capital. While Trump has used Hilary’s speeches to the likes of Goldman Sachs against her during his campaign trail, an analysis of his statements directed at the sector reveal that he could be more likely to safeguard the industry interests than his Democratic rival.
Federal income taxes under Obama varies between 10 and 35% depending on the bracket. Corporates are taxed on their profits – which was 35% under Obama.
To gain his votes, Trump played on the financial insecurities of the average American. Trump has signalled to Congress and voters that he plans to cut income tax for the individuals on lower than $25,000 annually and corporate tax to 15%. With a tax plan last seen in the Reagan era, Trump is looking to cut individual and corporate tax by $1.5trn each.
While Trump’s rhetoric is that he will improve lives for the working class American, one of his key fiscal policies is to slash inherited tax. Together these cuts will supposedly add $5trn to the deficit. He argues that these tax cuts will pay for themselves, increasing demand for consumer goods and encourage companies to hire more American workers. Capital Economics predicts that American companies overseas are hoarding $2.5trn in cash to avoid paying taxes. He is hoping corporate tax policies will, therefore, bring the likes of Apple back to American soil and generate increasing tax revenues and employment opportunities.
Under the Obama administration, US unemployment was under 5%, one of the smallest counts in US history.
Yet Trump’s campaign focused on the parts of the American economy that had failed to recover since the Chinese trade recession and the financial crisis. Trump appealed to the white working and middle classes and focused on the once-booming industrial centres such as the car-manufacturing Detroit. He asserted that he would “keep jobs and wealth inside the United States”. By lowering taxes, tightening immigration rules and erecting trade barriers, Trump claimed that he would increase employment. In addition, he is looking to spend $600 billion on job creation, which he claims will be funded by economic growth.
In order to finance this scheme, it is likely that Trump will need to run a rather large budget deficit – as the world’s largest economy and the home of the reserve currency, that the US can afford to do so. However, there are some economists who fear that increasing the budget deficit, which ballooned under Obama, could send the US into a recession, dragging the global economy with it.
During Obama’s Presidency, the Democrat passed the Affordable Care Act, but Obamacare has struggled to pass through Congress. As such, Obamacare has been diluted – it relies on competition between insurers to deliver affordable coverage. Even so, it has successfully provided health insurance for over 20 million people across the United States. Perhaps one of the most alarming Trump policies to date, abandoning Obama’s universal health care plan, could see millions of Americans without insurance due to the excessively expensive nature of the private system exacerbated by the profit-oriented pharmaceutical companies.
Trump has criticised the healthcare act for its inefficiencies and promoted his policy that will aim to provide a tax-free health savings account. Whether this will be something entirely new or Trump will continue Obama’s legacy with his name stamped on the package is as of yet uncertain. But given Trump’s businessman-like style, it does seem a possibility that he will acquire a similar idea from the previous White House incumbent and make various modifications.
At present, there is the potential to reshape the market landscape for pharmaceutical companies. Per capita healthcare costs are growing at an unsustainable pace which has triggered mergers and acquisitions and price competition. Bain & Co predicts that the 177 million who purchase their healthcare insurance through their employers will see little change by the repeal of the Affordable Care Act, but those on Medicare could be subject to a wide array of changes. Similarly, consumers purchasing health plans on public exchanges could see an elimination of their subsidies under President Trump. In the short-term insurance companies are likely to suffer, as a reduction in the number of individually insured patients would result in an increase in bad debt expense while the uninsured fall back on emergency care. On the other hand, pharmaceutical companies should see less interference from the government, which in turn could create the competitive pressure to bring down prices over time.
The Obama administration championed capitalism at its finest, encouraging American tentacles to extend to the far corners of the globe in a typically neoliberal pursuit of advanced globalisation.
The Donald’s trade policies centre around the idea of protectionism. His campaign rallies fostered the sentiment that foreign trade has stripped US industries of the competitiveness. Just as Farage did during the Leave campaign, Trump cited globalisation for the loss of jobs in critical sectors of the US economy. His principal criticism is that cheap goods coming into America have cost domestic goods and eroded wages.
Trump has outlined his trade policies to include a likely renegotiation or removal of US participation in many key international free-trade agreements. Primarily he plans to scrap the North America Free Trade Agreement (NAFTA) which reduces trade barriers between the US, Canada and Mexico. Despite the fact that the US has plenty to gain from its tariff-free exports, Trump cites it as the fundamental reason for the decline in US manufacturing jobs and industries.
There is also concern surrounding the recently established Trans- Pacific Partnership (TPP), between the twelve countries that surround the Pacific Rim, and the Transatlantic Trade and Investment Partnership (TPIP). There is a common concern amongst economists that a Trump presidency could spark a wave of anti-globalisation protectionist policies that were born by the Brexit vote on June 23rd.
The incoming President is looking to place a 35% tariff on Mexican imports and a 45% tariff on Chinese imports. There are concerns that this may spark a trade war with China. Trump has claimed that since China joined the World Trade Organisation, 50,000 American factories have been closed and tens of millions of jobs have been sacrificed. His accusations that China is a “currency manipulator” has criticised one of the world’s strongest economy on further accounts of “unfair subsidy behaviour”. If Trump follows through on these import duties, he will provoke a supply shock to the US economy, as Chinese goods are vital to the American economy. China supplies three-quarters of the mobile phone devices for the US market, with a trade monopoly on all tablet and laptop computers.
At his victory rally, Trump declared that the US would build “great, great relationships” with other nations. It is difficult to tell if he will follow through on his divisive and protectionist rhetoric, but the potential threat far more accountable than before. What is more, trade is the one area where the President has the freedom to act without the approval of the lawmakers in Congress.
In 2014 just over 11.7 million Mexicans migrated to the US. At 28% of the nation’s foreign-born population, they were by far the largest ethnicity. However, there are now more Mexicans that are returning than there are entering the US according to a recent report from Pew Research Centre. The research centre cited poor job opportunities as the principal reason for their retreat. Trump has previously included Muslims in his immigration ban but has since backtracked on this sentiment only including countries from which known terrorists operate.
Despite the declining influence of the Mexican population in America, and the fact that they contribute 4% to the nation’s GDP, Trump is still keen to build a wall to “keep them out”. In his rallies, Trump argued that Mexican cheap labour had taken job opportunities away from the working class and depressed wages. In 2015 Mexico imported $236bn from the US and exported $295bn. This amounts to $531bn in goods trading each way. While the US is in a trade deficit with Mexico, these goods could be produced on American soil, even if they will consequently lead to higher prices.
The Economics of The Wall
Bernstein Research recently conducted a report portraying a simple cost analysis of a wall along the Mexico and the US border, which stretches 1,989 miles. If we were to assume that the wall was 1,000 miles long (subtracting the natural barrier of the Rio Grande) and 40 foot high, the cost would be approximate $711m for concrete and $25bn for cement. The labour could amount to anywhere between $15bn and $25bn, although it would help Trump to deliver a portion of his 25 million jobs. The Republican candidate used a $10bn figure in his campaign. But, of course, these reports most likely failed to include that can apparently build walls cheaper than his competitors.
“I will build a great wall – and nobody builds walls better than me, believe me – and I’ll build them very inexpensively”.
Due to his ability to appeal to the concern of many white middle-class American voters in the deep south that Mexicans were taking their jobs and encroaching on their culture, Trump was able to sell his idea to pursue a custom acquisition.
During his campaign trail, he went further, adding that he would force Mexicans to pay for the wall by cutting off the payments from immigrants back to their families in Mexico. According to the World Bank, these remittances amount to $25bn a year, which is approximately 2% of Mexico’s GDP.
Prior to a Trump Presidency, the American economy was growing steadily; more jobs were created each year, and even the previously stagnant manufacturing sector was witnessing some improvements. Incomes across households in the US improved during Barack Obama’s eight-year term. But for the people who were left on the other side of the tracks, Trump’s insular and protectionist strategies have provided some psychological relief. Trump’s methods of corporatism may benefit the profits of big businesses in the short term. But it is certain that long-term growth and workers will suffer from his ill-thought out and disastrous policies.
It has often been said that to succeed in business you must be “so good that they can’t ignore you” (Steve Martin).
Trump has been the exact opposite. He demonstrated futility, irrationality and inexperience, to such an alarming degree that people did more than take notice of him. He became a household name across the world and represented a break away from the establishment. By presenting himself as an average American citizen, he became relatable to his target audience. The world will now wait to see whether Trump can deliver on his promises, or whether the American economy is strong enough to withstand an election-friendly monetary policy.