It’s fashionable to write off President Trump. His healthcare reform has been slowed by strong opposition, his tax reform has been delayed, and now he is being investigated over his links with Russia and the removal of the FBI Head from office. The market has wobbled over these difficulties.
Meanwhile President Trump has turned his attention to a Chinese summit and a state visit to Saudi Arabia. He surprised his critics by behaving diplomatically and delivering some progress on trade. All those who wrote warning us that Mr Trump would be a protectionist, undermining the world trade system by enacting his tough language about the surplus countries, have to pause to think again.
It is true that President Trump refused to sign the Trans Pacific Partnership which his predecessor had toiled over. Maybe Mrs Clinton would have been unable to sign as well, as she implied in her campaign. He has not ,however, brought a major case against China for currency manipulation, has not refused to talk about market opening measures with other great trading nations, and has shown himself keen to promote US business abroad. NAFTA (North American Free Trade Agreement) is still intact, with talks opened to see if trade rules can be relaxed more.
His negotiations with China led to some market relaxation. US beef and GM products may get easier openings to a Chinese market that has kept them out so far. US credit card companies will get more access, and US Credit Rating Agencies will no longer need a local Chinese partner to offer services. This is workmanlike progress, where more could follow. In Saudi Arabia President Trump’s forthright condemnation of Iran helped create the favourable atmosphere to sign deals for US companies to sell $110bn of arms, with further contracts over the ensuing decade taking the total to a possible $350bn or more. Whilst foreign policy specialists argue over the wisdom of this stance, US business will be grateful for major opportunities to boost turnover and profit.
Nor should we discount completely the idea of reflation to come. Speaker Ryan is as keen on tax cuts as the President. He is an able politician who wishes to use the Republican majority in both Houses whilst it is still there to use. He says the tax cuts have been a bit delayed, but not cancelled. Spending more money on infrastructure can be popular with Democrats as well as Republicans, and President Trump is keen to use executive powers to facilitate new investments in energy and transport. One of the crucial areas will be what changes if any his Treasury team put through over banking regulation. US commercial banks are capable now of financing a reasonable recovery, but President Trump would like to speed the process up a bit. Banking reform is probably the easiest way open to him to do that.
Meanwhile the general world recovery continues. All the time Central Banks remain accommodative the world economy can grow, whether Presidents are doing well or tripping up in the media. President Trump with his business background, is keen to do anything he can to win more jobs for America. Markets need to remember that when they are weighing up his impact.
The above article by John Redwood, Charles Stanley’s chief global strategist, was first published by Charles Stanley on 22nd May 2017.