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It’s still sinking in – the biggest thing since the Berlin Wall came down. And scarier.
It hasn’t been a week yet but the advent of President Trump has rattled the world like maybe only one other event since the collapse of the Soviet Union.
That’s a very big statement when you think of everything that’s happened in the 27 years since the Berlin Wall came down – the 1990-91 recession, the Asian financial crisis, 9/11, the Afghan and Iraq wars, the GFC, the Arab spring, the rise of Daesh, Brexit – but I’ll stick with it.
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The only thing I’d rate as a bigger game changer has been the full emergence of China as the world’s growth engine. The other events are all momentous, but the rise and rise of China and the election of Trump tip the world’s balance. They change everything – alliances, global trade, our economic future.
Of course it’s already a cliché to state that we don’t know what sort of president Trump will be, that he doesn’t know himself, but we know enough to be very wary with each passing day. Whether it’s suggestions that Trump will repeal the Dodd-Frank banking legislation, remove financial advisors’ fiduciary duty for their customers or withdraw from the Paris climate agreement, Trump is rattling agreed foundations of behaviour. And that’s before getting to foreign and trade policy.
Wall Street has decided – or fervently hopes - President Trump will be good for business, that he will primarily look after his own Robber Baron class and won’t do some of the crazier stuff he’s pledged. Instead, he’ll let capitalism rip by slashing taxes, spending big on infrastructure and defence and ditching controls and regulations. Climate change, Ivanka, is a Chinese conspiracy.
The Economist magazine has suggested something rather different – “something between Reaganism and France’s National Front”. And that is the optimistic view.
If it was possible to put the bullying racism, sectarianism, trade threats and plain stupidity aside – as the financial markets appear able to do - the fiscal stimulus promises a welcome break from the stagnation afflicting much of the developed world.
But there’s a major problem with the suggested formula for letting the good times roll. As the sugar hit wears off, Trump can’t keep the core promise he made to his white rust-belt faithful: he can’t bring home the jobs he claims China and Mexico “stole”.
To the extent that the cheap labour story was ever true (much of the manufacturing job loss story is more about automation than formerly-cheap Chinese labour), the game has moved on. And there’s another wave of technological challenge fast approaching that will wipe out many more jobs for all colours of collar.
As the news of Trump’s win was coming through last week, I was at an Institute of Public Works Engineers of Australia Queensland conference listening to some of the planning and societal challenges ahead. There was a sharp contrast between the IPWEAQ brave new world and the last-century economy Trump was promising to revive.
A small example: self-driving cars. Google “autonomous vehicles job losses” and pick whatever number you like for how many million taxi, Uber and truck drivers who won’t have a job soon enough.
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Bigger will be the impact of artificial intelligence on transactional jobs in the finance and administration sectors. Shortly before the IPWEAQ conference, a Brisbane university retrenched many of its librarians – they were made redundant by IBM’s Watson.
Preparing for that world requires a greater investment in people, in health and education and the services sector. Trump also intends to drastically cut taxes for the rich while increasing spending on hard infrastructure and defence. Inevitably, that will mean Republicans wanting to shrink government services in the areas that will be needed most.
The welcome infrastructure spending can soften the blow, but it still must be paid for. That’s something Trump doesn’t seem to care about.
Populist Trump has been fighting the last war, telling the rust belt whites he’ll bring their jobs back. That’s already not true. The FiveThirtyEight web site has demonstrated that the rise in US manufacturing that has taken place since the GFC has not had a commensurate increase in employment.
“Since the recession ended in 2009, manufacturing output — the value of all the goods that U.S. factories produce, adjusted for inflation — has risen by more than 20 percent, because of a combination of “reshoring” and increased domestic demand. But manufacturing employment is up just 5 percent. And much of that job growth represents a rebound from the recession, not a sustainable trend.”
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Trump’s mash of protectionism and Reaganesque trickle-down economics threatens to kill more jobs than it creates. A New Yorker magazine feature on why Trump is wrong about manufacturing jobs tells part of the story, but the really scary bit is what a trade war would do. Even a relatively mild increase in tariffs has the potential to shrink the logistics industry by more than any resurgence in American manufacturing could compensate.
Nothing is as simple in the complicated interrelations that make up an economy as Trump would have people believe. For example, Trump’s pledge to deport 11 million illegal migrants will cost jobs and weaken the economy by so sharply and quickly shrinking the workforce.
As for foreign policy, oh dear. Trump has already made Europe more nervous, weakened NATO as an institution, encouraged Russia and challenged China. As the Economist magazine’s editorial opined: “The fact of Mr Trump’s victory and the way it came about are hammer blows both to the norms that underpin politics in the United States and also to America’s role as the world’s pre-eminent power.”
Maybe the last word’s go to a Chinese commentator quoted in the Economist:
“If he [Trump] is in office for eight years, he will successfully be the first US president to lead America’s economy from number one in the world to number two. Yes he can!”
The timeline of China’s rise is set to achieve that anyway. The danger is that Trump could take much of the world lower with him.
Michael Pascoe is one of Australia's most respected finance and economics commentators with over four decades in newspaper, radio, television and online journalism. He regularly appears on Channel 7's Sunrise and news programs and is a regular conference speaker, MC and facilitator.
