Beware of pundits talking about seismic political shifts

Donald Trump speaking at an immigration policy speech in Phoenix, Arizona. Photo: Gage Skidmore

Donald Trump speaking on immigration in Phoenix, Arizona. Photo: Gage Skidmore

The below is a note (slightly edited) by Charles Robertson, global chief economist at Renaissance Capital, that was emailed to the media.

Politics has not changed as much as it appears.

In the history books, Trump’s election victory might be attributed to him capturing the surge of disenfranchised voters who lost out to globalisation. Or being a new style of president who through clever use of the media could capture change in the political zeitgeist and attract a new voting base.

The reality is that he is the least popular candidate of either party in the last three presidential elections.

Voters that John McCain could capture, Trump lost. Voters that Mitt Romney won, Trump lost. Hillary Clinton received 10 million votes less than Obama in 2008 and six million less than Obama in 2012, and still won more votes than Trump.

This bears some resemblance to recent elections in Poland, where the populist PiS won because votes (and turnout) fell for the centrist parties. The point is that electorates are not changing as much as we might think from the election results. This was not a Brexit vote with a surprise result coming from high turnout.

So while I worried that Brexit and Trump victories might imply a Le Pen victory in France in 2017, leading to France’s departure from the EU and the break-up of the Eurozone, this analysis makes me less worried (the graph at the bottom of this piece makes me barely concerned at all).


Source: Wikipedia

What to expect

Mexico gets hurt, but the very cheap currency may offset any rise in tariffs (Most Favoured Nation tariffs become the default if NAFTA is cancelled, and they are not that high).

Expect tension with China – which in a worst case scenario might have a knock-on effect on commodity exporters like South Africa, Russia, etc.

He will be supporting the US energy industry, which supports the view that oil will be at US$45/bbl (give or take $10) for the next decade.

The Financial Times reports that Trump may meet Putin ahead of Trump’s inauguration in January, which may lead him to recognise Crimea’s annexation, and remove sanctions later in 2017, presumably in return for closer cooperation in Syria and access for US businesses and banks to Russia.

Tax cuts, which may become retrospective, could lift US demand in 2017. Infrastructure spending plans will take longer to implement. US 10-year bond yields widened sharply this week. I assume the Fed would be fairly relaxed about the demand boost from this, and would not move rates dramatically even if inflation rose to 3% for a year or two. But perhaps a rate hike in December, and two in 2017 are plausible in this scenario. 

Trump’s second term, 2020-24 

As a base case, I assume Trump will be re-elected in 2020. Incumbents saw their vote rise significantly in their second-term election, in 1984, 1996, and 2004 (Obama in 2012 was an exception). Indeed, the only time the Democrats have lost the popular vote in the last 25 years was in 2004, during George W Bush’s second re-election bid.

The only three presidents to fail to win a second election in the last century (since before World War 1), were George H Bush (hit by the 1990-91 recession and higher oil prices during the first Gulf war), Jimmy Carter (hit by recession and the oil shock of 1979/80), and Herbert Hoover (hit by the Great Depression of 1929). Gerald Ford did not even win a first term, having taken over from Nixon.

So the main threat to a Trump second term is a US recession which is admittedly due in the coming years.


Source: Wikipedia

A quick chart on French presidential election results. The National Front has never got more than 6.4 million votes in the first round of the French presidential election. It looks inconceivable that they could lift this to the 15-20 million votes they would need to win in a second round.


Source: Wikipedia

For reasons to do with income inequality (low in France) and it being in a different point in the cycle to Anglo-Saxon countries, I suspect France is closer to voting for a radical Thatcher-like candidate than it has been for generations.