In August, I wrote that those stories you were reading about the US presidential election being close were fiction. Earlier this week, I restated that opinion. The Bank of Canada said in October that uncertainty about who would replace Barack Obama in the White House causing Canadian companies to hold off on new investments. Any executive doing so was either misguided or looking for excuses, I argued. Yes, the Republican candidate had pledged to blow up the North American Free Trade Agreement. But the chances of Donald Trump winning were so remote, there was no reason for an honest-to-goodness capitalist to adjust his or her plans, I said.
Canada’s “cowardly” chief executives are looking rather wise this morning. From a purely economic perspective, Trump’s win in the presidential election is a disaster, at least over the the short term. Paul Krugman, the Nobel laureate economist who now spends most of his time sharing his opinions with the readers of the New York Times, predicts a global recession. Krugman may have let his despair get the better of him. He is a passionate critic of the Republican Party, and he wrote often of his disgust of Trump. Still, unless you are one of the 59 million Americans who voted for Trump on Nov. 8, Russian President Vladimir Putin, or TransCanada Corp. chief executive Russ Girling, there is little reason to feel good about the state of the world. For the remainder of the year, and then well into 2017, there will be no way to know what the leadership of the world’s most important economy has in store for the rest of us.
There is an optimistic scenario, which requires fewer words to describe, so let’s put it on the table now: A president’s unilateral authority often is exaggerated, but Trump will have the power to lift the block on TransCanada’s Keystone pipeline. Girling might as well order a start on whatever work can be done before it gets any colder. Republicans also defied the experts by retaining their majority in the Senate, and they continue to control the House of Representatives by a healthy margin. That could improve the odds of cooperation between Congress and the White House. Republican lawmakers and Trump both want to cut taxes; There is now nothing stopping them from doing so. That would be a good thing for the economy, provided they retained revenue by closing loopholes and ending tax breaks.
Can the Republicans be counted on to use this power responsibly? Obama condemned his presidency to constant gridlock because he abused the Democratic landslide in 2010 too much, too fast. He and the Democratic leaders in Congress overhauled the health system and financial regulation, all while taking extraordinary measures to fight the financial crisis. Republicans also will be tempted to implement their priorities while there are fewer Democratic lawmakers around to stop them. So while one-party rule could bring tax reform, it also will invite an assault on Obamacare, the Dodd-Frank banking regulations and everything else of substance Barack Obama accomplished during his presidency. The Democratic Party is badly damaged, but it retains enough strength in the Senate to disrupt a Republican agenda. Make no mistake, more chaos is coming.
Then again, that assumes there will be a unified Republican agenda. There is no way to know if there will be at this stage. Trump sees himself as the leader of a movement, not the Republican Party. One of the reasons I and so many others were sure he would lose was that he split his own party; much of the Republican establishment disavowed him during the campaign. Trump owes Republican leaders in Congress nothing, and those leaders have every reason to remain wary of the threat Trump’s misogyny, nativism, and xenophobia represents to the party’s future electoral prospects. The president-elect talked like someone who wants to make friends in his victory speech in the wee hours of November 9. His words hold no meaning until he begins to build a track record. Trump told his supporters that he and they, “owe Clinton a major debt of gratitude for her service to the country.” Days earlier, he was inciting those same people to chant, “Lock her up!” Trump also said in the speech that the world need not fear him, that he would treat America’s allies and trading partners fairly. This from the man who promised his supporters that he would build a wall between the U.S. and Mexico, and that Mexico would pay for it.
So who is the real Donald Trump? Who knows? The responsible thing for any executive or investor with exposure to the U.S. is to put everything on hold. And that’s why Krugman predicted a global recession. Investment already was chronically weak because there are so few prospects for growth. It is about to get weaker.