One-year score card for Trump

Jan 11, 2018·Alasdair Macleod

We understand our politicians to be human, with much that that implies. In a democracy, politics is a competitive business, which means that generally well-balanced individuals tend to succeed, while those who are obviously unbalanced do not. And as for political power corrupting individuals, that is normally limited by the obligation to periodically seek an electoral mandate. That, at least is the theory, but in late-2016, the election of President-elect Donald Trump caused us all to question these fundamental assumptions.

It is now almost a year since president Trump took office, so it’s a good time to assess his impact both at home and abroad. To some extent this task is made easier by the hurried publication of Fire and Fury, by Michael Wolff. Or should that be, made the assessment more difficult?

Wolff’s book is certainly controversial. It paints a picture of rival camps in the White House, all telling Trump only what they want him to hear, making it palatable with flattery while briefing against rival camps. It paints a picture of Trump as a self-centred, media-obsessed, child-like slob who retires to bed at 6.30pm with a McDonalds hamburger, calling his billionaire friends and others on the telephone to constantly seek their reassurance and confirmation that he is a great guy. In short, Wolff alleges Trump is wholly unsuited to the office.

Unfortunately, much of it rings true, evidenced most recently by Trump’s clumsy response to stifle publication, which only served to make Wolff’s book the hottest item in all the bookstores throughout America. His subsequent tweets, proclaiming himself to be a genius, “and a very stable genius at that”, puts him on a par with Kim Jong Un when it comes to bizarre outbursts. With Kim the Rocketman, as head of a repressive police state threatened by America, there are reasonable political explanations for his behaviour. Not so apparently, with Trump.

At this rate, as Trump’s presidency unfolds, only the true anarchists, those that want to see the establishment crash and burn, will be left supporting him as he declines into failure. Many ordinary Americans, fed up with all the alleged corruption in US politics, and the very obvious erosion of their personal freedoms, voted for him hoping for change. For this change to succeed, a Machiavelli combined with an expert in classic economics would be required, qualities unfortunately not evident in Trump.

There are two possible ways ahead for the Presidency. First, the sacking of Steve Bannon, and the subsequent pressure put on Breitbart’s shareholders to remove him as executive chairman will have created a well-informed and dangerous enemy needlessly. It is commonly understood that in politics you must keep your enemies close to you, and a suitable appointment anywhere is the means of doing just that. Instead, it is unlikely we have heard the last of Mr Bannon, who is now free to testify against his prime enemies, Jared Kushner and his wife Ivanka, over meetings with Russians. Bannon should not be underestimated as a future danger to the presidency.

The months ahead will certainly be interesting, and with Bannon sniping from the side-lines, Trump may become even more unpredictable. The second, alternative, way ahead will require Bannon to disappear and let the deep state in the White House and Langley gradually take control over Trump and his family.

If Trump survives, it will be under these conditions, and he will likely become little more than a figurehead, ranting to little executive effect. Though this could apply to some areas of policy and execution, economics remains a central problem. Trump takes a simplistic businessman’s approach. He believes that American businesses should be protected from foreign competition and that businesses should pay less tax. He reckons that these two policies will create jobs and make America great again. The effect on the budget deficit is either ignored, or airily dismissed as tax cuts being positive for tax revenue in the long run.

This has even the neo-Keynesians and monetarists deeply worried, and for once they have a point. Tax stimulus for them is appropriate when the economy is in recession, not when it is already expanding. At this stage of the cycle, the budget should be moving into surplus. It is not. Furthermore, Trump’s tax policies are going to increase it at the worst possible time. Economists at the Fed and elsewhere will expect this to result in rising price inflation, for which interest rates will have to be raised to control it, triggering the next credit crisis.

Furthermore, if Trump introduces trade tariffs on imported raw materials, semi-manufactured, and/or final goods, he will end up raising consumer prices even more at a time when domestic capacity has run out of headroom. Trump fails to appreciate that tariffs are a tax on consumption, raising prices and harming consumers. Only now are mainstream critics beginning to express their concerns at the potential economic consequences of Trump’s overly simplistic approach to trade protection and tax.

The international dimension

Trump’s election was so unexpected that world leaders have beaten a path to his door, not to curry favour (except perhaps the British, seeking to re-establish the “special relationship” that had declined in the Obama years), but to suss him out. Doubtless, Putin would have visited him as well, but the furore over real or imagined Russian intervention in the election made that impossible. Instead, President Xi visited Trump at his private residence at Mar-a-Lago at an early opportunity. It was during the state dinner that Trump launched the attack on Syria’s Al Shayrat airfield, and he read the result to the assembled Chinese dignitaries off the tape. One cannot imagine the Chinese behaving like that, and what Xi thought of it is not recorded.

The visit by Angela Merkel, the de facto leader of the EU post-Brexit, was something of a horror show. Trump complained about unfair competition from BMW, and that Germany wasn’t pulling her weight in NATO. Furthermore, America expected Germany to cease trading with Russia, not only a near-neighbour, but a very important one for German exports and energy supplies. Mrs Merkel’s body language said it all, and no public handshakes or cheek-kissing were recorded.

Trump’s visit to Saudi Arabia did little more than expose his political naivety. Effectively organised between Jared Kushner and Crown Prince Mohammed bin Salman (MBS, the king-designate), it was Trump’s first trip abroad as President, and he was barely aware of and certainly insensitive to local religious and political sensitivities. MBS, employing all the flattery he could muster, doubtless thought it an enormous success. He got Trump’s support to take down the Qataris, despite the presence of the US military base there, about which Trump was seemingly oblivious. Nothing was said about Yemen, and little or nothing, it seems, about support for the Sunni terrorists in the region, funded from Saudi Arabia, that have led to so many deaths and displaced refugees.

According to Wolff, Trump thought he had secured peace in the Middle East. Instead, he stoked up animosity between Sunnis and Shias, and he later threatened a new war against Iran. The Saudi trip showed how Trump’s decision-making is driven by lack of thought, the words of the last person to bend his ear, and the temporary effects of personal flattery. He rarely or perhaps never reads anything, so doesn’t do the necessary homework to understand the full ramifications of political and diplomatic issues. He has very little concentration span, seemingly unable to sit in a meeting for more than twenty minutes. In short, if you know these weaknesses, he is very easy to manipulate, which is what the Saudis achieved.

After all the razzmatazz of the Trump visit, MBS took his elderly father on a state visit to Russia, to meet Putin. If Trump’s visit had political objectives for MBS, his visit to Putin was essentially commercial. Russia and Saudi Arabia are the two largest oil producers, their markets are mainly in Asia, and their trade has very little to do with the United States, other than energy contracts are usually priced in dollars.

Commercial considerations are more important in diplomacy than the pure politics. It is clear that MBS is increasingly moving towards China, Russia and the various Asian groupings, because those are her markets for oil exports. His interest in Trump was to persuade America to fight the Shia Crescent, including Iran, Kurdish Turkey, Syria, and Hezbollah in Lebanon. And that mission appears to have been achieved.

Geopolitical consequences

It is unlikely that Trump’s election will change Chinese and Russian geopolitical objectives, but it could affect their timing. We can be sure that Xi and Putin have discussed Trump, his personality, likely political survival, and the internal battles for control of the White House. The central question for us all is whether they will speed up their plans for wresting control of their trade flows from the dollar, or will they continue to follow a policy of letting America make all the strategic mistakes, while they pose as the innocent beneficiaries?

It might be tempting, particularly to the Russians, who must be fed up with constant accusations of meddling in Western elections, to take advantage of the situation while the White House is dysfunctional, and the deep state, centred on the Pentagon, has yet to fully reassert its customary control. But Trump is unpredictable, and overt action by China and Russia might have unpredictable results.

It is an interesting call in what amounts to a financial war. A quote from Clausewitz is appropriate in this context:

“No one starts a war, or rather, no one in his senses ought to do so, without first being clear in his mind what he intends to achieve and how he intends to conduct it.” [i]

Broadly, the Chinese and Russian strategy has complied with Clausewitz’s dictum. They have progressed cautiously in their international relations, with clear objectives. They have let their opponent, America, lacking a clear objective, make all the mistakes. They recognise that America outspends them militarily, so they do not choose that battlefield. But they do recognise America’s financial weaknesses, so that will be the arena for her defeat.

As to what China and Russia intend to achieve, it is no less than being the dominant economic powers in control of the Eurasian continent, and to secure the supplies necessary for its development. To achieve that, they need to do one thing, and that is to kill the dollar off as a trade currency for their cross-border trade. It is easy to do it through stealth, because the Americans do not yet appear to believe it to be possible. It could be done more rapidly by deliberately undermining the dollar’s credibility, perhaps by ramping up the gold price.

There is probably no reason for them to change their strategy, or to accelerate the pace of the economic power-shift. Both Putin and Xi exude calm confidence, being on top of their agendas. Trump is the epitome of disorganisation, and when things go wrong on the global stage, the blame increasingly attaches to him. Furthermore, the timing of the dollar’s demise is not necessarily in the hands of the Chinese and Russians, but of fate.

This article ends with a chart that sums up the state of the financial war between these super-powers, the renminbi/dollar exchange rate. The renminbi has risen 7% against the dollar over the last year. It is likely to continue to do so, if only because the Chinese are likely to follow a policy of making their currency a preferred store of value to the dollar.

Renminbi USD dollar exchange rate

By maintaining a strong currency, the price inflation effects of increasing dollar prices for commodities will also be reduced for China’s domestic economy. China is less worried about export competitiveness, because she is shifting the employment of labour towards infrastructure development and new service industries. Factories producing basic goods for export are being rapidly automated, which will keep them competitive, despite a stronger currency.

The only losses for China will be on her stock of US Treasuries, held as part of her foreign reserves. According to a Bloomberg report made only yesterday (partially denied this morning), the Chinese are considering cutting their US Treasury holdings, which sent shockwaves through the bond markets.

A warning shot perhaps?


[i] Claus von Clausewitz, On War (Princeton, 1976) Page 579.


The views and opinions expressed in this article are those of the author(s) and do not reflect those of Goldmoney, unless expressly stated. The article is for general information purposes only and does not constitute either Goldmoney or the author(s) providing you with legal, financial, tax, investment, or accounting advice. You should not act or rely on any information contained in the article without first seeking independent professional advice. Care has been taken to ensure that the information in the article is reliable; however, Goldmoney does not represent that it is accurate, complete, up-to-date and/or to be taken as an indication of future results and it should not be relied upon as such. Goldmoney will not be held responsible for any claim, loss, damage, or inconvenience caused as a result of any information or opinion contained in this article and any action taken as a result of the opinions and information contained in this article is at your own risk.