Trump’s political economy may triumph amid uncertainty

Trump’s four-year presidency will be rife with controversy but ripe with potential too. As Lord Meghnad Desai highlighted, there is a need for Trump to focus on nurturing international cooperation in foreign policy, reducing risks of destruction of growth in trade, and creating policies that eliminate the prospect of global conflict or depression.

With Trump’s plan for infrastructure investment, foreign policy and trade, his term could be economically viable, argued Lord Meghnad Desai, Professor Emeritus of Economics, London School of Economics and Political Science.

The concentration of voters outside the centre was where Trump found those most passionate about voting. He captured the hearts and minds of a group that was offered something “different from the normal toothpaste”, said Desai, who was at the opening of the Official Monetary and Financial Institutions Forum’s Singapore office.

In his presentation, The Political Economy of Donald Trump, he said: “We have to be impressed by how an amateur entering politics decides to reinvent the rules, economise his resources and play things his way.”

Trump was methodical and diligent in securing voter sentiment, according to Desai.

Getting to the crux of the matter, Trump grasped the dissatisfaction of the excluded voters and identified with what they were struggling with. His threats to remove immigrants and racist remarks were a response to the sentiment of American helplessness towards the current system, Desai suggested.

Profound and lasting change is expected during the new reign of Trump. The repercussions that will unfold with his intentions for foreign policy, trade protectionism and national interests have caused confusion and remain unclear.

Despite the pessimistic outlook, Desai zeroed in on three pillars – the infrastructure investment scheme, foreign policy plan and trade programme – that would see Trump’s term stay economically viable.

Investing in an infrastructure plan

Desai is optimistic about Trump’s infrastructure plan as it would create new and more jobs in manufacturing, and reduce labour market pressure in the country.

He observed that “bread and butter issues” were what ultimately determined the election’s outcome. The infrastructure stimulus would thus shift the economy to one that is strategically labour-intensive, given that for decades a large chunk of the working class had lost their manufacturing jobs.

According to Desai, a push of capital is also needed. This revival of a stale economy replenishes funds and transmits cash to the actual economy. In this measure, Trump’s plans for infrastructure investment could bode well for the US economy.

Just like in the UK, the US government is driving growth and opportunity for retail investors by encouraging the private sector to pump in funds for power supplies, airports, motorways and buildings, noted the Financial Times.

Troubles with trade

It is true that the position that the new government takes towards global trade spells unforeseen changes with a lasting impact.

A report by Moody’s Analytics suggests proposed tariffs on Chinese and Mexican goods would add more pressure on inflation, drive up US consumer prices, and cut down US trade with the rest of the world. Economists fear that the tariffs will increase costs and lead to a trade war and rapid global recession.

There is also uncertainty over how Trump’s seizure of trade deals will play out. An article in Foreign Policy argues this could further complicate matters as entering new discussions about a trade deal, such as the North American Free Trade Agreement, would require Canada’s and Mexico’s presence. Add to this voter sentiment in Ohio and Michigan of how trade would cause instability for workers and cut jobs, and the future looks hazy.

However, Desai remains cautiously optimistic because he envisioned that Trump’s infrastructure investment plan would improve living standards and foster growth across the US economy.

Foreign policy: A delicate balancing act

Trump’s persistence as a dealmaker and shrewd business tactics are also qualities that have the potential to strengthen US-China bonds.

Desai’s view is that Trump leveraged the trade war with China as a bargaining tool. As hegemony and imperialism have shifted from the UK to the US and will move to China in the near future, Trump is likely to apply his negotiating skills to striking the best possible deals with China for optimal outcomes.

However, accusing China of being a currency manipulator may bring about legal repercussions, warned Desai. Should Trump continue with this threat, it could harm China by excluding it from financing deals, incurring a diplomatic row with Beijing and weakening US interests in Asia.

On the Russian border, Desai envisioned there might be some softening of tensions and mounting complexity with military alliances.

Europe, which Desai described as “too far on their moral high horse”, may largely alienate itself from Trump’s America. German chancellor Angela Merkel and the post-Brexit British government have echoed this distancing as well. Similarly, security plans from Russia are indefinite. Putin’s vision of an integrated Eurasian security system has since been disregarded due to the North Atlantic Treaty Organisation’s (NATO) expansion.

As for the rest of Europe, Desai is cynical about an impact on pending elections in France, Netherlands and Germany. Initiatives from France and Germany to drive and strengthen the European agenda could be expanded to defuse tensions, but may not have enough weight to be carried through.

Trump’s four-year presidency will be rife with controversy but ripe with potential too. The Economist reported that the Middle East and Asia remain volatile, which could lead to rising oil prices and disruptions to global trade. NATO allies from Eastern Europe fear a lack of protection from Russian invasion, and vulnerable religious and racial minorities closer to home could see themselves being disadvantaged in Trump’s impending social plans.

In a careful balancing act, Trump’s political aides and his administration need to be dedicated to the American public. As Desai highlighted, there is a need for Trump to focus on nurturing international cooperation in foreign policy, reducing risks of destruction of growth in trade, and creating policies that eliminate the prospect of global conflict or depression.


This article is written as an event coverage piece for the Political Economy of Donald Trump talk which took place at the Lee Kuan Yew School of Public Policy on 15 November 2016.