Wednesday, November 09, 2016

So what are President Trump's actual policies going to be?

As discussed in the last post - Trump has won the electoral vote and Hillary seems to be headed towards winning the popular vote. Barring some unanticipated dynamics in the electoral college - Donald Trump is the next president.

Given that he has said so many things in his life and during the election process contradicted all of them and then retracted his contradictions and then gone back on those retractions, a reasonable person could say they are very unsure of what President Trump's actual policies will be.

Some specific questions that will need very specific answers are:

1) Will President Trump seek a renegotiation of trade treaties with major US economic partners? 

  • Will he seek to effectively renegotiate NAFTA ? - NAFTA currently acts as a bulwark against inflation. By accessing cheap labor and natural resources in Central and South America while still retaining access to the US and Canadian markets - US based companies are able to make huge profits which they then send back into the IRAs of all "middle class" Americans. Poorer Americans benefit from this arrangement too because they can buy things made cheaply in places like Mexico - the same goods made in the US would be unaffordable. I tend to think of NAFTA as a kind of stent that keeps the American economic heart from seizing up. As Trump enterprises itself benefits "bigly" from this arrangement - I don't know why he would put into place any measure that seeks to disturb this arrangement. 
  • Will he seek to introduce trade barriers on Chinese imports? - US trade with China is a two-pronged affair. While China supplies cheap goods to the US, it also accepts a very large number of dollars. The dollars are recycled to the US via purchases of raw material (from the very states that elected President Trump) and from Wall Street (which doesn't seem to care for President Trump). Even if you don't like Chinese made goods - you still buy them. Even if you insist on a "Made in the USA" tag on everything - the tag itself is made in or made with stuff made in China. Even the Trump brand clothing is made in China. Any attempt to disrupt this trade pattern will lead to massive shifts in the real value of the dollar. With the Chinese economy is widely believed to be nearing its Lewis point and possibly approaching a Minsky moment - any fluctuation in that trade pattern could couple far outside its intended limited scope. The economic damage from such a fluctuation could spread across the world. 
2) What will President Trump's true posture on debt issues be? 

  • Will President Trump interfere with the Federal Reserve? - The Federal Reserve wants to raise the interest rates because it is difficult to keep printing money without doing that. Unfortunately the Trump campaign has engaged a lot of popular resentment against the "International Bankers" who "rigged the election" and "system". If the US economy is to grow - those rates must go up. If President Trump stays clear of the Federal Reserve - then he will alienate a vast portion of the people who elected him. If he interferes in the Federal Reserve's functioning - he will condemn the vast majority of the people who voted for him to perpetual economic stagnation.
  • Will President Trump default on the treasury bonds? - Investors are dumping stocks and jumping into long term treasury bonds which are linked heavily to the Trump Campaign's promises of an America that is "Great Again". At the most basic level investors are hoping that bonds will insulate them from immediate market fluctuations that will occur in the aftermath of the election. If President Trump attempts to implement his strategy of defaulting on treasury bond obligation in an effort to cut what he sees as a growing debt burden, then this strategy will fail. This is considered a low probability high impact risk right now but it is crucial to the security of all investments in the world - every IRA, college fund, mutual fund etc.. etc... is linked to these treasury bonds. If the US defaults on the bonds, - to quote George H.W. Bush - things fall apart.
3) What is President Trump's national security posture? 

  • If the SecDef refuses to press the button - will President Trump say "you're fired"? - The current dyad system requires that the President and SecDef push the red button together. The SecDef can't veto the decision but the SecDef can refuse to press the red button. If the SecDef refuses the President can fire the SecDef. During the campaign, Donald Trump showed a complete lack of awareness of these details. He also didn't understand the fundamentals of nuclear security. The only thing standing between a 3AM mood swing and global nuclear destruction is the dyad system. 
  • Will President Trump turn a blind eye to nuclear proliferation? - This is something that has been hinted at during the campaign. Is this how it will actually go down? Are Japan and South Korea on their own - going forwards?
  • Will President Trump reduce US contributions to international security organizations? - Most of the US alliances are held together because of a flow of dollars. This has a two fold effect - first it secures basing rights for US forces in various countries, and secondly it attaches a sense of physical security to a piece of paper we call the dollar. If the US cuts off this flow - NATO will fall apart and old European rivalries will re-emerge or the Russians will walk into Western Europe. The Trump campaign made promises to the various groups about "getting others to pay more" etc... but there is very little actual leverage to do this. 
  • Will President Trump carry out more direct military interventions? - These are very expensive affairs regardless of what the initial sticker price says and the procedure for legally declaring war with congressional approval is quite involved. During the campaign Donald Trump has spoken openly about indulging in military adventures. Does President Trump intend to make this kind of stuff a part of his national policy structure? - if so then we are likely to see more illegal wars of the Iran-Contra or Laos variety break out.  If not then we are likely to see to see the present - much criticized - state of affairs continue. 

4) What will President Trump do about his media problem?

  • Will the Trump Administration pursue policies that limit the freedom of the press? - The Trump campaign railed against the media and the manner in which it explored the truth behind the campaign's claims. Will President Trump actually insist on passing laws which effectively muzzle the media? 
  • How will President Trump cope with the negative portrayals of his policies? - The Trump campaign has shown a remarkable inability to cope with negative perceptions of his own words. People will not stop using his own words against him. 
5) How will President Trump deal with Congress? 
  • Given his non-traditional origins - the Senate and Congress will never actually be entirely comfortable with President Trump. Whatever engagement exists it will be ballasted with leverage. At the present time - there are two sources of leverage - support for President Trump in his next election and the threat of impeachment. How will President Trump cope with this situation? - especially as he has a long history of entering into protracted legal battles and Congress has an equally long history of rewriting laws in its own way. 

These are open questions at this time.

I am leaving out the issue of immigration - as we all know that there no likelihood of real change on that issue.

I am leaving out discussion on specific infrastructure building ideas (a lot of those have been bandied about) as none of those can be financed (even privately) without the Fed's approval.

Most people who voted for Donald Trump do not know the answers to these questions. They voted for him because they saw themselves in him - not because they possessed any real understanding of policy frameworks or decision making systems.

As with any new administration - the Trump Presidency begins with a huge surge of support among the people that voted for him.


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