So much for rational markets: there’s been an awful lot of cherry-picking and wilful blindness on the part of American business (and for that matter their counterparts elsewhere in the world) about Donald Trump. But the grim reality that he is going to be bad for business is taking hold, as he proves to be as distractable and uncontrollable as he was during his campaign, and pursuing exactly the policies he promised he would.
The Dow has returned about 8% since his election victory, the S&P 500 index is up more than 6%, and the Nasdaq Composite Index has risen more than 7% during that period. In Australia, the market peaked at 5807 on January 9 (it bounced half a per cent yesterday in a relief rally after Trump took action to free up the bitterly opposed Keystone XL and Dakota Access oil pipeline projects), but the market is up more than 8% since Trump’s election. Corporate leaders, from the opportunistic Australian Andrew Liveris of Dow Chemical (who campaigned for Hillary Clinton but is now a supporter of Trump) to auto company bosses and the CEOs of healthcare companies, especially insurers, have queued up to truckle to the new president.
That’s based on some selective deafness about his policies: Trump’s spruiking of a trillion-dollar infrastructure plan and big corporate tax cuts (talk about prosecuting the interests of the forgotten white working class — cutting multinationals’ taxes will show ’em!) has attracted the attention and support of previously sceptical US business. The tax cut and a one-off low tax rate on earnings and cash offshore will generate a cascade of cash for businesses, especially the S&P 500 and big privately owned groups such as Cargill and Koch Industries. But that will only be a one-off benefit, and many companies will be forced to sell their holdings of US debt (Treasury notes) or incur huge costs by moving them from Ireland, Belgium or the Cayman Islands back to US. But on the upside, business leaders know this one-off deal will boost their bonuses and the value of the options and share rights, making them wealthier.
Ironically, that prompted a surge in the US dollar’s surge, meaning American exporters and other companies face lower earnings (and growth) in the March quarter (we will find that out from April onwards).
But while American business was preoccupied with the goodies Trump was promising them, he was capturing them. No one will dare take a stand contrary to Trump’s, especially on free trade or jobs, meaning now that US business is the prisoner of a volatile man with no experience of international trade, and someone whose business record is littered with six bankruptcies of businesses (especially casinos) and the non-payment of debts to contractors, especially among small businesses. The penny has started to drop as Trump promised a new era of protectionism in his inaugural, dumped the TPP (which was good for US corporations, if not for consumers and workers anywhere) and threatened punitive tariffs on US businesses that dared to locate their operations to cheaper foreign locations.
Trump’s focus is on manufacturing, but he has missed the crucial point. US manufacturing output is up 20% since 2000, but jobs are down by a third to around 12 million. How does that compute? Much of the boost to output has come as a result of automation in cars, technology and other sectors. Automation is spreading through the service sector, especially warehouses of the type owned by Disruptor-in-Chief Amazon. Amazon’s CEO Jeff Bezos, by the way, has had to very publicly reverse course on his previous strong criticism of Trump, who in turn had threatened to go after Amazon (La Donald is only pro-business if they support him, it seems. Bezos, not coincidentally, owns The Washington Post).
In the past 10 days, the blindfolds have started to come off, and some in the markets want to see the Trump policies and rules on issues such as tax before talking up his ideas. The Dow has fallen back from the verge of topping the 20,000 level to struggling to stay above 19,800. Mark Grant, chief strategist of Hilltop Securities, put it in a note last week, reported by Marketwatch:
“In my almost 43 years on Wall Street, I am not sure that I have ever seen so much consternation than at present. It is not just differences of opinion but it is a quite real fear of the unknown, I suppose. People just don’t know what they are getting into or where the country is heading.”
Ditto locally. “As week one in office gets underway, there is a growing sense of scepticism, not helped by the tone of Friday’s inaugural address and subsequent spat with the media,” ANZ analysts said in a note on Tuesday.
The uncertainty of a volatile, thin-skinned and vindictive president with the most inexperienced cabinet in generations — and the protectionist straitjacket he wants to lock US business in — has become apparent.