When Kamala Harris became the candidate for the presidency of the United States, she was an instant success. Her relative freshness and energy, common sense, attempts to conciliate, break the political deadlock, the choice of her easy-going vice-president and her debating skills all worked in her favour. She was slightly ahead in the polls and the trends predicted her as the winner.

That is now history. The hurricane season hit the US hard. There were more storms than normal and they hit a wider area. Though the federal government reacted normally, victims complained, as victims do. Trump reacted with one of his signature, obvious and insulting lies: he accused the Federal Emergency Management Agency of channeling its money meant for the storm victims to migrants. The polling statistics turned. The trends now favour Trump. Now what?

To analyse how a second Trump presidency would influence markets, it is necessary to analyse Trump first.

In investment terms, he has a highly negative correlation with truth and social. His tendency to let his personal interest prevail over national and party interest as well as his unwillingness or inability to learn, change, take responsibility or even apologise make him quite predictable. He admires strongmen of all kinds, leftover Stalinists, populists and extreme nationalists.

Karimov parallels

In his first term, he already showed an inclination towards a strongman model. He demanded blind “loyalty” to him, rather than to the country. He tried hard to undermine the trias politica model by not seeking deals with the opposition, using his majority to block Congress, undermining the press and the judiciary and chafing at Fed policy. A segment of his followers has seen and accepted this. They openly defend that the US should be more like Russia. Trump’s own model of presidential perfection is likely to be Putin, but in practice, he has more in common with the policies of Islam Karimov, first president of Uzbekistan.

Karimov was involved in an attempt to overthrow president Gorbachov. For fear of the consequences when the coup failed, he declared Uzbekistan’s independence. Once established, he sought allies on the principle of “the enemies of my enemies are my friends”, rejecting leaders of bordering nations. After an islamic rebellion, he became ferociously anti-islam. He clamped down on all opposition, and instituted a stifling personality cult. When he died, his daughters were discredited by corruption, including stealing the gold of the central bank. His ill-gotten capital and real estate was silently expropriated.

For non-Americans the most direct consequences would be in geo-political alliances, climate change action, the role of the US dollar and foreign trade.

From the WTO to NATO

In the area of geo-political alliances, Trump already de-fanged the World Trade Organisation by blocking the dispute settlement procedure. He could similarly dismember NATO by disavowing article 5, which commits each member state to consider an attack against one member state to be an attack against them all. He would try to block US military deliveries to Ukraine. After Putin declared regions of Ukraine independent having invaded the country, a besotted Trump called Putin a “genius”. In addition, after Hamas attacked Israel on 7 October, Trump called Hezbollah “very smart” and Israel’s defense minister a “jerk”. Trump’s daughter’s father-in-law, Massad Boulos, is a Lebanese who has previously described Hezbollah’s endorsed presidential candidate in Lebanon as a friend.

US allies are quite sceptical of Trump. Last June, Pew research found that in most nations a significant to overwhelming majority had more confidence in Biden to do the right thing in world affairs. In a handful of nations, often ruled by a populist or a strongman, there was little difference between Biden and Trump. Trump won out only in Tunisia and Hungary, both ruled by a strongman.

Trump’s attitude to climate change is not different. In his first presidency, he tried to take the US out of the Paris Agreement. China has eagerly filled the void, e.g. by becoming market leader in wind turbines and electric vehicles and an important producer of solar panels-albeit discredited by a high rate of failure.

Fate of the USD

Trump’s advisers are telling him to abandon the traditional “strong dollar” policy and let the currency slide instead. Obviously, this is meant as a short-term solution for the consequences of Trump’s protectionism. However, such a policy would undermine the dollar as a reserve currency. If trust in the US dollar collapses worldwide, the US, which has run a current account deficit ever since the Vietnam war, can be pushed into default and the global economy in a deep recession. It is not clear if Trump accepts these proposals, but it is quite clear that he will end the independence of the Fed if he can.

These trends come together in foreign trade.

The EU is building a coherent set of climate change related regulation that is the benchmark of the rest of the world for taking action against climate change. Even post-Trump, it will be hard for the US to swallow that they had no say in the development of these standards and rules. Part of the EU legal structure are restrictions on import of goods produced with polluting technologies. At the moment, they apply only to a handful of products, but as the cost of the fight against climate change mounts, that is likely to change. The EU cannot accept or afford to pay the cost of US pollution. There will be extensions to other products, which would lead the US and EU towards a trade war. The WTO will no longer be a valid intermediate. It would be highly uncharacteristic for Trump to back down or make concessions.

In addition to this major economic issue, there is a host of social issues, ranging from respect for international law, the death penalty, gender, racial and religious discrimination and abortion to gun laws, genetically modified food and internet privacy where the EU and the US have values that would drift further apart under Trump.

The election has yet to come. The future cannot be predicted. Trump may still end like Karimov, but the above, dark scenario is realistic.

Peter Kraneveld is an international pensions adviser at Prime BV 

 

 

Topics