Trump Presidency: Consulting the oracle

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By Ronke Adeagbo FCCA, FCA

By around 4 am on Wednesday 9th of November 2016, the Republican nominee, Donald J Trump, had proven the vast majority of pollsters and analysts wrong by winning the US Presidential Election by a clear margin. Our worst nightmare became a reality. Markets initially reacted negatively, but later became steadier. Just like magic, Trump will become the 45th president of the United States of America.

President - elect Donald J Trump
President – elect Donald J Trump

Without a doubt, this is one of the greatest political upsets of the decade and one of the most interesting victories of all times. It felt like Brexit all over again and even Trump had predicted Brexit +++. No surprises there, after all, Nigel Farage of UKIP was one of Trump’s advisers and supporters. My initial reaction was that of shock and surprise and later, it all felt rather surreal. I felt it was a superstition. Until I gave myself, a reality -check and the penny finally dropped as the margin widened. It is called democracy stupid! I said to myself.

 It all started like an illusion, that is now crystallising right in front of our eyes. I guess, just like Nigerians, Americans needed change desperately and change they got. They had enough of the elitist political establishment. Trump is moving from Trump Towers to the White House. The man who made a fortune from real estate and reality TV is now the REALITY. Enters the entertainer. The joker of the year is now the leader of the world’s greatest economic and political power, making him the most powerful man in the world. Experience in public life has given way for inexperience. Prophecies have become fallacies. The polls have been proven wrong. Nobel Laureates have egg on their faces. Some high- profiled political strategists are diving for cover. Like a thief in the night, Trump sneaked in on Americans and charmed his way into their hearts and minds. I guess his unpredictability, ignorance and inconsistencies have turned out to be a virtue. Misogyny now seems acceptable and sexy. The man with the toxic language has found favour with his people. Without a doubt, this would be one of the most unconventional presidents. The next four years shall be a roller-coaster ride, so tighten your seat-belts. The man with the biggest ego that needs to be protected and massaged, now has the nuclear button at his fingertips. …… So upset him at your peril. Inevitably, we would need to have a strategy to temper his temperament. This write-up is an attempt to explore what the regime of President Trump has in stock for the world.

As if winning the elections was not enough, both Senate and Congress continue to be held by the Republicans, thus freeing the hand of the new President-elect regarding his policy plans. The outcome of the election has significantly empowered and emboldened the president-elect to have his way as he deems fit. Which is something he would relish. I guess he would probably start off with appointing ‘yes men and women’ to the supreme court and perhaps appointing former Mayor of New York City, Rudy Giuliani as attorney general to go after Hillary Clinton. As we all appreciate, running a campaign is different from running a country. Now that the politicking is over, reality has set in. Even world leaders are behaving themselves by making a ‘U- turn’ on previous statements credited to them. Most, trying too hard to engage and embrace the Almighty Trump constructively. Considering Trump seems to have the propensity to gravitate towards Russia’s Vladimir Putin. Trump has also said he believes NATO is obsolete, unnecessary and he is inclined to reduce America’s financial support to NATO. This is music to Putin’s ears. European leaders, therefore, need to be paying attention and adopt a practical and pragmatic approach in engaging Trump.

From an economic perspective, as I mentioned earlier, Markets initially reacted negatively. It is obviously too early to be too definitive in terms of the market reaction, but the first signs are that at the time of writing, (morning after the election), the UK and European equities dropped down less than 1%, with US futures pointing to a 1.5%-2% lower. The US dollar was weakened by around 0.2% against the euro and a larger 1.8% against the Japanese Yen. Also, indicating the market’s interpretation of events, the Mexican peso fell by nearly 10%.

The rush to safe havens, which is the main reason for the rise in the Japanese Yen, also boosted the price of gold by almost 2%. Corporate America is very robust and will adapt well to vulnerabilities in the market.

Several policy elements could have important effects on the US economy, both positive and negative.  These are: Tax and spending plans: The bipartisan think tank, the Committee for a Responsible Federal Budget, has estimated that Trump’s tax and spending plans will add $5.3trn to the national debt over ten years. He intends to invest a lot in infrastructure, which is a good thing but capital intensive. Hence more borrowings will be required. The main proposals of these plans include a simplification of the personal income tax rules, which will result in a significant tax cut for wealthy individuals, a reform of business taxes and $450bn of extra defense spending. The reform or repeal of the Affordable Care Act, known as Obamacare, could be an offset and add to the US budget. These estimates are forecast to increase US debt as a percentage of GDP to 105% by 2026 but, crucially, this number does not include any adjustment to GDP growth because of the boost from tax cuts and defense spending. There will be many arguments about the likely increase and it will depend on the actual details of the policies enacted.

Trade and Immigration: Donald Trump has been highly skeptical regarding free trade deals and immigration, stating that he would focus more on domestic activity and would reject or repeal many of the current deals, such as NAFTA, NASCAR or the Trans-Pacific Partnership, especially with China. We all know too well that if China sneezes, the whole world would probably catch a cold. It goes without saying that any attempt to pull the plug on any existing trade deals will dislocate world trade stability.

Economic theory overwhelmingly suggests that less free trade results in lower GDP growth over time and if trade restrictions are adopted, global growth will be weaker. Against that, if fiscal stimulus is delivered such as a drop in corporation tax etc., there is a part offset to the broader growth impact. For the time being, the possibility of trade and migration restrictions is being interpreted negatively for Mexico and China. Let’s hope he does not get around to building the ‘infamous’ wall. Tall order!

The Federal Reserve and Monetary Policy: Federal Reserve Chair, Janet Yellen, has come in for some criticism by Donald Trump and the chance that she will not be reappointed when her 4-year term ends in February 2018, has indeed risen.  In the meantime, it is unclear what the short- term economic impact will be, and I still expect an interest rate increase in the mid-December meeting, but the risk of a delay has also risen. This would provide a boost to markets in the short term.

The Brexit decision, the US election results and the weakening hold of centrist consensual politics in much of the developed world in the past few years, tells us that political and policy uncertainty is higher.  The backlash against globalization has been ongoing for a few years, and with hindsight, it was only a matter of time before this was reflected in upsets to the political status quo. Even if the US result had gone the other way per the dominant market expectation, the broader trend would still be in the direction of more challenges to consensus economic policies.

Implications for Nigeria: It is no secret that Nigeria is not the new President-elect’s cup of tea. So naturally, we should expect some hostility and unsympathetic approach towards Nigeria. Especially towards illegal Nigerian immigrants in the US. Probably, it is a good idea for illegal immigrants to start considering coming back home. Nigeria needs their westernised and robustly developed skill-sets. After all, if one door does not close another will not open. Please do not underestimate the new President-elect. He is highly unpredictable, and I am quick to add that, sometimes he displays some demented tendencies. At least we are on the same page when it comes to, same sex marriages.

Also, it is highly likely that US aid to Nigeria might be significantly reduced and this would have a huge knock- on effect on our fragile economy, especially around health care provision. I do not expect the Trump Presidency trade policies would have significant adverse impact on our oil revenues. Considering, we currently do not sell much oil to the US and anyway our economy is in recession already. I guess the saying, ‘He that is down, needs fear, no fall” comes to mind. How low can we go? However, I will be quick to add, ‘the fear of Trump is the beginning of wisdom’. Let’s err on the side of caution, let’s be diplomatically savvy, plan purposefully, prepare professionally, proceed positively, pursue persistently and finally do what we do best, pray, pray, pray. The future is bright for Nigeria, do not let any Goliath intimidate us……… ‘little stones and a catapult’ comes to mind here, we only need to proceed with courage. Remember in politics and diplomacy, there are no permanent friends, or foes, only permanent interests.…. We are all equals but the US just happens to be the first among equals.

 Ref: AON view on impact of Trump victory.

‘Ronke Adeagbo is a chartered accountant and past chairman of ICAN UK District, current Treasurer of Central Association of all Nigerians in the UK (CANUK) and Director at British Safety Council.