Donald Trump news: The US President is finally winning ... but at what cost to the rest of us?

West Australian

a day ago

Are you tired of winning yet?
That was the question the United States Treasury Secretary asked his followers as he retweeted a White House post that celebrated $US150 billion in tariff revenues over an image of Donald Trump.
It pains me to say it but the US is winning.
It has used its economic weight to bake in higher prices for its trade partners without coming up against any serious opposition, except China who has for years has exploited its economic strength to undercut everyone else.
We are now in a world comparative advantage — the notion that each country should specialise in what it produces most efficiently, and trades for what the other does better — is being replaced by zero-sum game.
The prosperity of the past 75 years was built on fostering efficient production and it worked pretty well.
Despite Trump's Make America Great Again rhetoric about how unfairly it has been treated, GDP per capita has gone up and to the right steadily since the Second World War to a record $US86,000. By comparison Australia's is $US64,000.
China's is a mere $US13,303.
America's ability to innovate has allowed it to pivot from a manufacturing heavy economy to services-driven one, as Japan, then Taiwan, then China built up their own industrial bases.
And it has worked out pretty well for all concerned.
Two billion people have been lifted out of poverty in the past 75 years, 800 million alone in the last 40 years as a result of China's shift to 'Socialism with Chinese characteristics' as Deng Xiaoping termed it.
But Donald Trump, whose overriding philosophy has always been more; more women, more money, more acclaim, more gold tchotchkes, has decided that America should have more.
And it will.
As nations cave to tariff pressure to gain access to US markets, any exporter who lacks uniqueness will have no choice but race to the bottom in terms of what they will offer their American clients.
I like to call it the fruit stand analogy. If I am but one seller in a crowded market, I have no choice but to lower my prices to that of my rivals. To keep my business going, I'll drop my margins to the clearing price.
But in this market that Donald Trump has created, it won't be the base price that I will compete on, it will be the tariff I pass through to my customers.
With that, Trump is tilting the playing field in the US's favour, subsidising American companies and funding US the budget, while reducing the available revenue that would go towards innovation, wages or reinvestment in foreign firms.
Of course, the companies could say they are not going to cop that tariff hit, but if the leaders of the ten largest nations can't coordinate, how could millions of firms?
There was one force that has restrained Trump in the past — the markets. In his first term he used the stock market as a barometer, and in this term the bond market held some sway.
But after the dramatic drop following 'Liberation Day', US stock markets have soared to be higher than the start of the year. Bond markets have had a convulsion or two along the way but not enough to change the course of tariffs — although they have stayed the executioner's hand over Fed Chair Jerome Powell.
Despite almost every commentator suggesting tariffs are an 'act of economic self harm', markets have effectively rewarded Trump's behaviour. Are you tired of winning yet?
'When I reflect on year-to-date performance, I feel like pinching myself. Despite trade wars, battlefield wars and deteriorating fiscal policy, the US market rose in the first half,' said Michael Clarfeld of global fund manager ClearBridge Investments.
'To be bullish today, one must believe the market will sustain levels never previously sustained, rather than trade at the levels it usually trades at. When phrased like that, why would any risk-averse investor bet heavily on the former?'
And yet they are betting on it. In a recent market update, Blackrock, the world largest fund manager with $US11.6 trillion under management, said that investors can't afford not to have US equities as part of their portfolio.
It's a dilemma fund managers around the world are facing. Their remuneration is dependent on meeting or exceeding benchmark returns. And the outsized returns continue to be most common in US companies.
The sad part about that, is that superannuation and pension holders globally are inadvertently rewarding the actions that are harming their own long-term interests — namely the very companies they work for.
Joseph Healy, a lifelong banker who has worked around the world including at NAB before founding Judo Bank believes the cognitive dissonance is symptomatic of a system where 'capitalism captured by capitalists'.
'We have created a market system that favours short-term driven returns, and that drives the behaviour of executives and boards,' Mr Healy said.
'This insane focus on the short term and chasing alpha returns without the regard to the system risks that are being built up can lead to dangerous outcomes.'
Mr Healy, a Scot, has written a new book looking at what another Scot and philosophical founder of capitalism, Adam Smith, would make of the Australian economy.
He believes Smith would not like what he sees, and would be dismayed by the rising inequality of a growing pie being consumed by smaller and smaller numbers of people.
'Smith always believed in fairness and equity. You can't have an economy which is prosperous if inequality gets worse and worse.
'Young people are becoming disillusioned, companies are damaging the environment at the expense of long-term sustainability and executives are being paid excessive amounts of money despite behaving in ways that are not consistent with our moral and ethical values.'
Mr Healy, who has worked in both the US and the UK banking sectors said Australia is 'sleepwalking into danger' but is not yet at the point of the US and the UK where confidence has been lost in the establishment.
'Britain is on a very slippery slope and I fear America may be beyond repair despite the economic wealth, as the gap between the haves and the have nots is frightening,' he said.
With Trump's tariffs, the haves will continue to do well, especially at the top, where tariff revenue is paying for tax cuts.
America's have nots may yet find good jobs in reshored manufacturing but for now, everyone gets a bit less.
In Australia, the superannuation sector has some factors that keep it looking at the long term.
Estelle Parker, co-chief executive of the Responsible Investment Association of Australasia, said the wave of young people contributing to super is a factor in investment decisions.
'They are thinking more about the impact of world events and climate change,' Ms Parker said. 'And the number who want to invest ethically and responsibly is going up every year.'
Australian funds are among the more active on issues like climate, with 35 per cent of investors voting for in favour of Macquarie sticking to its climate commitments at the most recent AGM.
'We know the global economy is going to be far worse off under climate change,' said Kyle Robertson investor activist Market Forces.
'Returns over the long term will be worse if companies don't act as active stewards.'
In all the euphoria that led markets higher amid Trump's economic turmoil, here's hoping investors can take more notice of the long term.