10th November 2017

It’s a year since Donald Trump’s shock victory in the 2016 U.S. presidential election, so what has The Donald achieved? And what will the rest of his term bring? We’ll consider both with a focus on the economy, for where America as the world’s largest economy leads, the UK usually follows. Which matters for Khaos Control Cloud users, whether they’ve just started their journey with us, or not.

What Trump’s done

Americans didn’t just choose a president last Autumn, they selected a third of the Senate and all the House of Representatives. Given the Republicans emerged victorious at all three levels, and agreement between them is necessary to get laws passed, commentators believed Trump was on the cusp of passing large chunks of his agenda. But this underplayed Republican divisions. Time and again over 2017, we’ve seen Trump’s Republican opponents, such as Senator and onetime presidential candidate, John McCain, act as a party within a party that’s not always toed the line.

The takeaway is that Obamacare hasn’t been repealed, a vast $1 trillion infrastructure bill hasn’t been passed and not a brick has been laid of the U.S.-Mexican border wall. Tax cuts could be on the way, but they’ll be some way removed from Trump’s original vision, given Democratic support will be necessary to enact them.

But there are powers reserved to the president, such as withdrawal from treaties and directing military options as Commander in Chief of the armed forces, where he is free to act without Congressional approval. And act Trump has. In his capacity as the head of the Executive branch, Trump has presided over a Federal hiring freeze, deregulation and U.S. withdrawal from the Trans-Pacific Partnership (TPP). The Keystone XL oil pipeline is back on track, the clock is ticking till the U.S. leaves the Paris Climate Accord in 2020 and NAFTA, the North American Free Trade Agreement, is up for renegotiation.

Then there’s the power of the bully pulpit. With a speech, or perhaps tweet, Trump as president commands an instant audience, shifting perceptions and setting the agenda. That’s done much to talk up the economy, propelling the U.S. stock market to all-time highs, while also disorientating America’s enemies. States like North Korea may become more compliant, unwilling to test how far he’ll go.

What does this amount to?

Trump - One Year OnThe world hasn’t tumbled off its axis and fallen into the sun. Fears that Trump would rip up the Constitution, and disregard democratic norms, haven’t materialised. While his Administration has been rocked by an abnormal level of organisational chaos, with positions slow to be filled and staff quick to leave them, the American system, which has withstood civil and world war and depression, has so far withstood Trump. The system will survive Trump, not Trump the system.

It’s not the first time a politician’s promises have collided with reality. When considering the change presidents can make, it’s best to couch it in terms of a super-tanker changing course by degrees, not reversing altogether.

So, look beyond the tweets, ignore the controversy and we’re left with a standard Republican Administration. It’s hardnosed with military force abroad, liberal on the economy with tax and regulatory cuts, and conservative on social matters. All course corrections have been modest.

In line with market expectations – demonstrated by the soaring stock market – a standard Republican Administration probably means a robust economy with low unemployment and rising wages. And as the American tide rises, all boats, including the UK, will be lifted. Speedy agreement of a UK-U.S. trade deal after Brexit will help.

Dangerous bends ahead

But most of this is built on air, the promise of economic reform, not its reality. Market sentiment could easily turn if Trump’s tax cuts don’t get passed, are judged puny if passed, or an infrastructure bill doesn’t happen. And there are other headwinds:

  • The business cycle. The American economy has been expanding since 2009 and the further that date recedes, the more likely it’ll contract and turn into recession. But it’s hard to pinpoint when. Several indicators, such as the market cap to GDP ratio and Schiller’s P/E index, lean towards an overextended stock market. Others, such as short-term U.S. debt costing less than long-term, hint at a few years left. The best anyone can do is remain aware of these and the escalating likelihood of downturn.
  • Foreign policy crisis. Trump’s rhetoric, and hardened sanctions, might dampen North Korea’s nuclear ambitions, but the risk of disaster remains high. One false move, and even without nuclear weapons, tens of thousands in Seoul, the South Korean capital, might lose their lives at the hands of North Korean artillery. South Korea is also the world’s 11th largest economy and neighbouring ally Japan the 3rd, raising conflict’s potential to spook markets.
  • Mid-term elections. Come November 2018, Americans will again choose a third of the Senate and all the House of Representatives. Conventional wisdom has it the party of the sitting president tends to suffer, a result of protest votes, while opposition parties advance. If that holds, the Republicans could lose their majorities to the Democrats, further constraining Trump’s ability to pass growth-inducing laws. It would also enhance the possibility of the next headwind.
  • Impeachment. The extent of the Trump campaign’s collusion with Russia to steal last year’s election has been a simmering scandal. But whatever the misdeeds of his subordinates, evidence of Trump’s involvement has remained elusive. And Hillary Clinton and the Democratic party’s ties have proved deeper than first believed. But if incriminating material did emerge, it’d form the strongest charge against him in a possible impeachment case that’d consume most of his energy and distract from law-making.

Altogether, this adds up to an initially buoyant U.S. economy whose growth will stall if mounting challenges, from an uncooperative Congress to a new Korean war, aren’t overcome or avoided. We came to a similar judgement last year, but believe there’s now less road to run before conditions sour.

As for Trump himself, ignoring surface bluster, looking only at the laws he’s passed, we think he’s acted as a run of the mill Republican that’s encountered the usual obstacles getting his agenda through. We don’t expect this to change in 2018, or after. And we expect public perception to shift as this becomes more apparent. Trump will be viewed as less crazy, less dangerous and more as a mild reformer.

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