WEEKLY COMMENT 19-01-2017
By Barry Edwards
Outlook for 2017
Apologies for no comment last week, the computer gave up the ghost the night before I was about to write it with no alternative to hand. Now have a brand new Dell Vostro which is working out fine.
At this moment everything I read or hear is mostly predictions about the Trump administration or comment on the Brexit plan announced by Theresa May on Tuesday. It seems that investors and asset managers have confidence that Trump’s policies will be advantageous in the short term at least, while leaders of major countries and diplomats everywhere are very cautious and mainly pessimistic about the potential of his presidency.
Just about every new president says that their administration will ‘make America great again’ and Trump is no exception. Many commentators are comparing Trump with Reagan although he did have eight years as Governor of California. There has not been a President who has never had any experience in government or come from a military background which is intertwined with senior politicians. Therefore, Trump is really a complete unknown which may be to his advantage to get things done since he will be given the benefit of doubt when implementing policies, unfortunately in the hope they will fail.
The main difference with Trump, so far at least, is that he discusses his foreign policy intentions in the open and is prepared to involve those who are willing to assist in making them happen whoever they may be. This is a very different from the normal diplomatic secretive approach where there is little exposure to the intricate detail of the negotiations and sometimes no information at all. This may mean that he can achieve more his way because the parties to the agreements would not want their talks revealed in detail and commented upon in the media without the censorship that often occurs on these occasions.
We have discovered as secret information is eventually revealed that much of it is not that sensitive but is just protecting the individuals involved from criticism. That is quite threatening to diplomats and may give Trump some initial advantage. However, that will not last as the diplomats learn how to control the situation again. Initially, that could unblock many situations around the world that need sorting and move things on so that real solutions can be implemented which many people believe needs to happen. It is this scenario that many politicians and bureaucrats fear the most if Trump is not properly managed by those around him.
When it comes to American policy, Congress is there to oversee every policy before it becomes law and that requires a proper consensus of agreement even though the Republicans have control of both houses. Economists and commentators have been proposing for years that all major developed economies should invest in infrastructure and in the USA totally review the tax system especially corporation tax which is now the highest in the world. Trump has already announced that he plans to do this and will meet little resistance there which is why the financial community are responding to his presidency. It will not be long before we see exactly how he performs compared to his rhetoric during the campaign.
That brings us to Theresa May’s speech on Brexit; the main points confirm that the UK will leave the single market and most of the customs union allowing potential free trade to function in some form or another. Most people I have talked to believe this is a good negotiating stance and are happy with the majority of the content. No doubt, the Europeans will counteract by saying there is no chance of retaining a free trade agreement unless free movement of people is accepted but this is now a raw subject throughout the EU and many people expect some changes to this fundamental principle where it will not be quite so contentious as it has been.
Many EU countries are suffering the same reaction to immigration as the UK and have to respond to their people if they wish to retain power. Some eastern EU leaders are openly saying that reform has to be discussed in contrast to the official position and for some commentators it is only a matter of time before a new approach will be forthcoming. The UK is the catalyst for this discussion and it may well be more achievable as the talks proceed. In my view, the UK proposal has more merit than some politicians believe is possible and free trade with the EU is not completely out of the question.
2017 is going to be an interesting year and may turn out to be far more progressive than many imagine.
That’s all for this week, more observations next week.