Trump, the man in the mirror
Political ideology is contextual. It is a reflection of the thoughts and feelings and environment of the day. Trump is the man in the mirror for many who feel dis- enfranchised in this post-crisis environment. This is an environment where inequality in wealth and income has risen; where jobs have been lost to globalisation and not replaced; where many people feel they have been left behind by the very government they elected to help them. They bought the "Yes we can" message in 2008 and it failed them.
The rise in anti-establishment sentiment is not a US phenomenon. Rather, it is a post global financial crisis phenomenon. We have seen it in Australia.
In 1975, 95 per cent of the vote in national elections went to either Labor or the Coalition. In 2013, a quarter of the electorate voted for minority parties.
In Europe, the rise of the far-right anti-immigration movement culminated in the decision on 23 June for Britain to exit the European Union. In May, Europe came within 31,000 votes of electing its first far-right head of state since 1945 when the Freedom Party of Austria, founded in the 1950s by ex-Nazis, lost the election by the smallest of margins. The result was declared invalid by the constitutional court after faults in postal ballot procedures. A new election is set for 4 December. Spain has finally formed a minority government after 10 months of deadlock following its election in December 2015.
Political culture is the product of our time. If the 1990s was known as "The Great Moderation", today's environment will be known as "The Great Volatility". High returns and low volatility have given way to low returns and high volatility. Free market, free trade, free enterprise ideology has given way to highly regulated, protectionist, big government ideology.
The euphoric benefits of globalisation as China ascended onto the world stage have given way to the ugly truth for those left behind by governments who failed to re-train, re-educate, and reform affected industries. The baby-boomer generation that so critically gave economies a kick-along in the 1990s is now acting as a drag on growth as they withdraw from the workforce and draw on government support for health and aged care.
It is in this climate that President Trump will reside. The hangover of the 2008 financial crisis is still lingering in the form of a cautionary approach to business spending and hiring. The policies used to address the post-crisis world have exacerbated a widening in income and wealth inequalities within countries providing fuel for the current uprising.
President Trump comes to office with a conservative ideology. On individual rights and domestic issues such as abortion rights for women, limiting gun ownership, legally requiring the hiring of women and minorities and prioritising green energy he disagrees on all. Similarly, on economic issues he is moderately conservative where he believes in a privatised social security system, limited influence of government in the market, and no tax hikes for the wealthy.
On defence and international issues, Trump stands apart from any other Republican President in modern history. Even President Richard Nixon believed in expanding free trade and stands apart from all of the past five Republican Presidents in terms of his desire to avoid foreign entanglements.
Certainly his views on free trade are a concern for Australia and it would appear that the Trans- Pacific Partnership will not be ratified by a Trump Government. Moreover, Trump has made it clear in his campaign his desire to renegotiate all existing trade deals. Immigration will be limited and pressure will be placed on multi-nationals to repatriate profits.
The implication for investors of a less open global trade environment is that sovereign risk must be re-priced to take into account idiosyncratic country differences. In a globalised world, inefficiencies are bid away and global collaboration supports the broader good. In a less globalised world, inefficiencies remain and national interests are put first.
This must be priced by financial markets accordingly.
This article was written by Tracey McNaughton Executive Director Head of Investment Strategy UBS and published by the Sydney Morning Herald on the 9th of November 2016