This is Armchair Economics with Hamish McRae, a subscriber-only newsletter from i. If you’d like to get this direct to your inbox, every single week, you can sign up here.
American business leaders are getting ready to deal with a Trump presidency, if that indeed is what is going to happen.
There is an extraordinary disjunction between business and politics in the US right now. How else do you explain the fact that the share indices are at all-time highs, yet according to a Reuters-Ipsos poll last month, more than one third of voters don’t want a Biden/Trump rematch. The central issue – and this cuts across the political spectrum – is simply that most Americans think that both candidates are too old to do the job.
So does it matter, from a business perspective who wins? Last month Jamie Dimon, chair and chief executive of JP Morgan Chase, shifted the whole debate about a Trump presidency by defending the former president, and the people who supported him.
“I don’t think they are voting for Trump because of his family values,” he said. “Just take a step back and be honest: he was kind of right about Nato. He was kind of right about immigration. He grew the economy quite well. Tax reform worked.”
Dimon is US financial royalty, head of the country’s largest bank, confident enough to speak his mind, and in doing so expressed a view that other leaders would have feared to say.
So this is not just a question of the markets being confident about whatever happens in the election in November. It is a reflection of a wider commercial view that it will all be fine.
So what should the rest of us make of all this? For a start, we should appreciate that business leaders are used to dealing with the swings of politics in much the same way as they deal with changes in demand for their products and services, movements in interest rates, technical changes and so on. They have to get on with it. Anyone running a multinational will have experience of coping with regimes that are not exactly model democracies, and they know that sometimes they will come unstuck. What has happened in Russia has taught them that. They also have to recognise that their customers will span the political spectrum, and it is not very bright to insult them by challenging their values and beliefs.
In short, commercial logic says business leaders should strive to be apolitical. There is a popular view that they lean towards the right, whereas people in other top roles – notably in the universities – tend to lean left. To some extent that must be true, and there is a further distinction between big business and small business. But the reality is that the commercial and financial communities will welcome any government that they think will be reasonably competent. Look at the way in which they are seeking to build links with the Labour leadership of Kier Starmer and Rachel Reeves here in the UK.
So is Jamie Dimon right in his implicit assumption that a Trump administration would be reasonably competent? I can see three dangers.
First, there will be pressure on the Federal Reserve to loosen policy – get interest rates down faster, and slow the reversal of quantitative easing, where it is now starting to sell back to the public the huge amounts of government debt it took onto its books to boost the economy. Property developers like cheap money, and don’t care too much about subsequent inflation. Trump is on record of criticising the current Fed chair, Jerome Powell, saying he had “no guts, no sense, no vision”.
Whatever view you take of the Fed’s policy in recent years, a president that attacks the constitutionally independent central bank is going to scare investors. Jay Powell’s current term of office ends in 2026, and just a few days ago Trump said he would not reappoint him.
Second, there is protectionism. In his previous term, Trump started to end the cosy trading relationship between the US and China, a relationship that arguably worked very much to China’s advantage rather than that of America. His reset of that, by bringing in import controls, has carried on under President Joe Biden. Indeed in some areas, particularly limiting exports of sensitive technology, the screw has been tightened further.
Global trade is hugely complicated, but I think the general drift towards a more nationalistic trade policy will continue whoever becomes the next president. The danger is that the random, unpredictable nature of Trump might lead to unnecessary long-term damage. The positive elements of global trade – and there are many – will get hit along with the damaging ones.
And third, there is the budget deficit. It is huge, and it is growing. The official projection by the Congressional Budget Office is that it will be over 6 per cent of GDP for the 2024 fiscal year. Maybe the world will be prepared to go on lending America the money, but foreigners at least may baulk at another Trump administration, particularly if further tax cuts are on the horizon. It may not make sense to predict a run on the dollar, but money is cowardly. At the first sign of trouble, it heads for the exit.
I can see why American business is reasonably relaxed about the forthcoming election, but it may be a little too insouciant about this strange contest. The long-term outlook for the US economy is as solid as ever, but the markets feel overconfident right now. There will be bumps ahead.
My frontline candidate for a big bump will indeed be some sort of break in market confidence. Short-term, there is nothing on the horizon that might undermine current confidence. But I could see a combination of an uptick in inflation, weakness of the dollar, and a more general sense that US equities are overvalued combining to create some sort of discontinuity.
If you say, OK, please rate those risks, it is tough to answer in any satisfactory way. But past experience of market disruption tells us two things. One is that things usually take longer to happen than anyone expects, but when they do, the reaction is more violent. The other is that it is impossible to see the trigger, the thing that tips markets up… or down.
The “longer than you would expect” point applies to the US equity boom. It has been astounding, and one encouraging aspect of it is the way the market strength is broadening. It’s not only the Magnificent Seven big tech companies – Apple, Microsoft and the like – that are booming. The shares of regular solid enterprises, the ones on the Dow Jones index, are performing well too. This gives confidence that even if big tech America hits a speed bump, the mass of other US enterprises will carry on fine, at least for a few months yet.
As for the trigger, I could see a Trump victory in November providing just that. It might not affect domestic opinion, but foreign holders might consider it time to take profits. That would hit US equities, bonds and property. Commercial property, by the way, looks quite weak right now.
Put it this way. It is hard to see a Trump victory being seen as positive in the eyes of a majority of international asset managers. If that is right, then the Jamie Dimon line that it will all be OK on the night, will turn out to be wrong. American business will work with the Donald. Foreign money won’t – or at least enough foreign money will decide to get out to end the long boom.
This is Armchair Economics with Hamish McRae, a subscriber-only newsletter from i. If you’d like to get this direct to your inbox, every single week, you can sign up here.
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