Watching the surprise victory in the Presidential election by Donald J. Trump, you could be excused for thinking it was Brexit all over again. However, we shouldn’t mistake the two. If Brexit was the slightly giddy aunt getting tipsy at a dinner party, Trump is the uncle who gets so drunk he does a drunken dance with a lamp shade on his head.
The key issue the world’s economy may be facing at the moment is that a victory for Donald Trump in this week’s long-awaited US presidential election may result a global trade war, thanks to Trump’s protectionist trade policies.
But look, share markets have rebounded this morning, which is a bit of a surprise, and might give a hint that things aren’t going to be as bad as you might think.
There’s no doubt that Donald Trump’s trade policies will amount to the single biggest change to the way America does business with the rest of the world in decades.
He has threatened to scrap a number of existing free trade agreements, including the North American Free Trade Agreement between the US, Canada and Mexico, which he blames for job losses. He has even suggested withdrawing the US from the World Trade Organization.
He is also in favour of taxing imports, and has talked about imposing tariffs of 45 per cent on China and 35 percent on goods shipped from Mexico, in an effort to prevent companies moving jobs south of the border.
Now, a trade war between the US and China, and the end of NAFTA would start to reverse the progress by which consumers in the US have become vastly better off by getting cheap consumer goods. Who doesn’t like a huge 4K TV for prices that we would only laugh at a few years ago?
The Republican victory would also have potentially serious implications for trade-focused economies such as Australia. However, looking at it more broadly, if the US does less trade with China – could that mean that Australia does more?
Australia could get a big boost from trade with China, which would now look for a new partner. That assumes that Trump doesn’t start a war in the South China Sea.
It is unlikely he will withdraw defence protection from South Korea and Japan, however the rhetoric and tone of the administration will be ‘America first’, and that’s a worry for Australia and the Asia pacific.
Trump has no political track record. He’s never been a governor, not even a mayor. And that means even republican supporters in the financial markets thought the calm and experienced Hillary Clinton was a better bet.
Donald Trump’s unorthodox populist fashion has confounded pundits. Donald Trump is the most isolationist political candidate since the 1920s when the Great Depression caused America and most nations to put up tariffs thinking that would stave off unemployment. How wrong they were. That could still come to pass, and the US slumps in to a massive recession. But that may not be bad for Australia either.
An astonishing chapter has been written in world history. A man who’s never held elected office, with no experience of government in any shape or form is the next president of the United States. We’re told that a Trump presidency is bad for confidence and investment, and will create a lot of uncertainty about many aspects of the economy.
However, Trump will go to the White House with a clean sweep, and huge power – the presidency, a Republican Senate and Republican control of the House of Representatives. He’s got the means to deliver. He has power that few presidents in the previous century have had, and that’s what the markets like. Instead of wasting years trying to get policies through, he can just decide to do something, and do it. That is a powerful lever, and done well, it can be incredibly powerful.
There may be another surprise left from Donald Trump. He may in office be quite different to what he has said in a ‘cut through’ campaign against Washington conventional politics. And as The Monty Python Boys say ‘always look on the bright side of life’. Despite the shock, the world keeps on spinning.
Indeed, just as the traders in the city of London looked on Brexit with doom and gloom – and then realised thinks weren’t so bad. After all, the Brexit vote gave the UK a huge advantage in financial markets. Not just independence, flexibility, and the power to self-determination. But also the collapse of the local currency means that those who have overseas bosses effective get big pay rise. Everywhere, there are silver linings.
Tim Harcourt is the J.W. Nevile Fellow of Economics UNSW Business School and host of The Airport Economist on Sky Business News and Qantas