• Seven key considerations for investors
  • Why China could benefit

So what should we think about President Trump — a hybrid of Andrew Jackson and Teddy Roosevelt?

It’s as well not to rush to judgement as the jury’s still out but over the last week we have been stewing over a few hypotheses…

Our core hypothesis is that the main result of this biggest upset in American politics since 1860 <and look what that led to> is that global market outcomes are going to be even more determined by geopolitics, as will the prospects for whole sectors and their shapes and sizes by how strategic and important they are to political agendas — whether in the US, China, Japan or Germany.

Right now, markets are acting, if not thinking, bullishly, due to the promise of US tax cuts and lighter regulations and a huge unfunded infrastructure program <which may well be curtailed by Congress>.

At the same time, a brazenly mercantilist America under Trump could plunge the world into a protracted recession.

How does it all play-out net, net and over what timescales?

It’s not neat binary.

The constraints on Trump

Trump faces a number of pressures and constraints.

Firstly, his hard core constituents will cause havoc if he flip-flops on the Wall, immigration and the early deployment of mercantilist weapons against China as part of the ‘America First’ and ‘bring back the jobs’ policy. What’s more, a president has wide discretionary powers on immigration and trade, so he won’t be able blame Congress for thwarting his campaign agenda.

The second constraint is fiscal: we have to look at the GOP policy framework vs the clatter bang Trump agenda in the context of strong forces in Congress for ‘small government’ and fiscal discipline, which threatens anything approaching the $1 trillion infrastructure policy envisaged against the backcloth of swingeing tax cuts and a further slug of already huge unfunded liabilities. It’ll take truly epic revenue buoyancy to square it all out.

Then there is the headwind of rising interest rates, whatever the Fed does.

Finally he has limited time. The election result was radically out of kilter with the underlying mega-trends in American demographics and culture, so Trump, who didn’t poll the majority vote despite the low turnout, has to deliver strong results on industrial jobs to survive one term, which may suit him as he can then go back to his TV channel gig if he gets turfed out.

In fact, he needs to show clear results by the mid-termers otherwise he almost certainly loses Congress.The Republican majority in Congress is fragile and insufficient to override any Democrat filibusters where a 60% majority is required.

The question then is: what impact could Trump have if he follows through on his policies? We think there are a number of key issues for investors.

Seven key considerations

1> On the matter of repatriated jobs: what’s brought back from China or elsewhere probably can’t be done by American labour as GE found when it repatriated its appliance manufacturing from China. US labour is not diligent, nimble fingered or obedient enough. Besides, automation is happening in China at pace, so, too, in the US.

2> A check on self-driving vehicles? Would a two-term Trump have to forbid the use of advanced ADAS to save jobs among truck drivers, warehouse fork-lift operators, construction site excavation equipment, tractor and taxi drivers?

3> A return to King Coal and preference for oil and gas over alt energy may lead to a sharp cut in or elimination of subsidies for electric vehicles and solar energy. Just how dire would that be for Tesla and Detroit’s sunken investment in NEVs? China is already bidding to exploit the PR vacuum and gain leadership of the global climate change agenda.

4> A battle with Silicon Valley: Trump and his hard core constituents hate the Silicon Valley ‘nerd nation’ for what they see as the job destroying tech change and globalisation it has enabled. Import tariffs on goods assembled in China but designed in the US would hit Apple, Cisco, HP and put up the prices of their products, though a lower corporation tax and tax on repatriated funds would help compensate, even if the likes of Amazon <not Silicon Valley of course> are aggressively pursued for tax avoidance and oligopolistic practices . Remember how Gates and co took their eye off the ball when preoccupied with seeing off the anti-trust threat in the mid to late 1990s.

5> Telecoms could benefit: If the incoming head of the FCC plays to Trump’s aversion to Silicon Valley and relaxes net neutrality laws the competitive advantage will shift from the internet companies towards the telecom operators — that is to AT&T, Verizon vs Netflix, Facebook, Google. The latter pay very little to use the telecom operators’ networks, which the ISVs claim is behind the US’s modest position in the global broadband speed league table. Meanwhile, tougher anti-trust laws may block the AT&T/Time Warner deal while still possibly allowing a Sprint-T-Mobile deal.

6> National Security over privacy: There will be rising pressure on US technology companies to put national security issues ahead of consumer privacy which could weaken the global competitive positions of the likes of Apple, Cisco and Alphabet. Trump was vocal in his criticism of Apple for not yielding to pressure to give the FBI access to the San Bernardino suspect’s i-Phone — the Feds broke into it anyway without Apple’s help. He has staked much of his reputation on national security and law and order and he may coerce US tech companies to breach users’ privacy and hand over personal data to government.

Meanwhile, non-allied authoritarian regimes such as China, Russia <although Trump may well achieve a concordat with Russia>, Iran and N.Korea, that feel affronted by Trump’s policies and rash behaviour, may respond with state-sponsored cyber attacks on US interests. The DDoS attack on Dyn last month showed how devastating attacks deep into the internet’s engine room can be <a rapidly consolidating cybersecurity sector to benefit>.

Silicon Valley’s only notable Trump supporter, Paypal founder Peter Thiel, whose deep data mining company Palantir is due to IPO next year, will scarcely be disadvantaged when it comes to awards of government contracts.

7> Talent Scarcity: US technology companies need a steady flow of talent from all over the world. They have long complained about the cap on H-iB visas for skilled immigrants and fear it will be lowered under Trump. The joke in Silicon Valley is that IC doesn’t stand for integrated circuit but for Indians and Chinese. The US lacks a sufficient number of people advanced in one or more of the STEM disciplines–<Science, technology, engineering and maths>– to attack a mounting skills shortage, while the high relative skills of Chinese and Indians in maths, increasingly significant in the algorithmic age, are widely acknowledged.

Bottom Line: The tech titans have much to fear given the incoming regime’s bias against Silicon Valley, oligopolies and net neutrality.

With China in Mind

One major hypothesis: over the next decade, now that TTP is dead in the water, China will create and finance a strong alternative to the current US-led trade and global financial architectures.

This will present a multi-dimensional issue for Trump too grapple with. A key element in the ‘America First’ policy is setting up countervailing powers via tariffs and non-tariff measures to the flood of subsidised Chinese exports into America. The US will also seek to block Chinese acquisitions, especially by State-controlled companies, of technology, and entertainment/media assets.

Haier, for example, is seeking to acquire GE’s appliance business. Companies as varied as Baidu, LeEco and BYD are also aiming to sit on top of the US market with LeEco, for instance, aiming to do so in electric cars via its control of California based Faraday Future, which may not be such a robust proposition now.

CFIUS has been nixing Chinese’ attempts to buy-up US semiconductor companies, predominantly led and orchestrated by SOE Tsinghua Ungroup — notably Micron and Western Digital.

The Trump administration will also be looking, perhaps, to stop the likes of Dalian Wanda, Alibaba and Tencent from further buying up Hollywood companies and media assets.

One tactic may be for Chinese interests to fund US PE drives to ‘privatise’ US listed companies. Meanwhile, how much blowback could we see among US consumers if Trump raises the anti-Chinese temperature against Chinese businesses and products?

The fact that Google, Facebook and Twitter are already effectively banned in China will provide the US with some justification should China make challenges under WTO rules. China which has always made it difficult for foreign companies to operate in China has recently toughened up the security laws over local data storage, government certification of hardware and censorship.

Given China’s huge investment in US assets it is unlikely to retaliate in extremis via destructive cyber attacks while continuing to cyber-raid of US IP on an industrial scale.

In short: China’s long game build-up of geo-economic power has been seriously boosted.

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