Sitting on the geopolitics panel kicking off the ninth annual University of Virginia Investing Conference, UVA Miller Center Director and CEO William Antholis wasted no time drilling into the topic much of the audience came to hear:
“And then Tuesday happened. It was revolutionary.”
At the conference, held at the University of Virginia Darden School of Business and hosted by the School’s Richard A. Mayo Center for Asset Management, Antholis and David Dollar, senior fellow of the John L. Thornton China Center at the Brookings Institution, advised investors at the conference to watch a few key developments in the early days of the Donald Trump presidency to understand how it might impact the global economy and investing environment.
Policy, its execution and the way the economy’s affected may hinge on the experts with which Trump surrounds himself. Antholis said there will be essentially two teams in Trump’s Cabinet — the economic advisers and the foreign policy advisers. On the economic side, Antholis said he expects Trump to choose people he knows from the business world and New York City circles, and that they may not all be Republicans.
On the foreign policy advisers side, Antholis said Trump faces a major challenge that should leave investors and global leaders wary. Most living Republicans with leadership experience in foreign policy “worked for a president with the last name Bush,” but many Bush allies led the “never Trump” movement due to the heated rivalry between Trump and Jeb Bush during the Republican primaries.
The result: Trump may have a “short bench” from which to choose his advisers, Antholis said, and might have to reach for more junior Bush staffers to fill senior leadership positions.
Trump Priorities and the U.S. Economy
Antholis said presidents typically only have one year and limited political capital to tackle one or two major issues before members of Congress turn their attention to their re-election.
Not long after the panel and following meetings on Capitol Hill, Donald Trump announced that his top priorities would be health care, immigration and creating jobs. Antholis predicted the president-elect’s top priority will be to address his No. 1 campaign promise: jobs for working class Americans.
“In terms of what he identified as a priority and who voted for him in the election, he wants to provide jobs to those people and give them hope for upward mobility,” Antholis said.
He predicted the easiest path for Trump to accomplish that goal would be a major infrastructure stimulus spending bill, which would be supported by many in Congress, including some Democrats, as well as business interests.
In general, Antholis and Dollar predicted that a Trump presidency will likely be “stimulative” for the economy, given likely tax cuts and infrastructure spending. However, they warned that the result of those policies together would likely lead to increased national debt, inflation and rising interest rates.
Dollar said it will be difficult for the U.S. to dig out of its trend of slow economic growth, stuck at roughly 2 percent. Ironically, he said more immigration is one of the best tools to boost growth. Given Trump’s position on limiting immigration, the U.S. economy will likely continue to suffer from flagging productivity.
From Trump’s promises to build a southern border wall to discussion of changing course on major trade agreements or the North Atlantic Treaty Organization (NATO) alliance, Dollar said the biggest immediate impact of the U.S. election has been to amplify the uncertainty of an already uneasy geopolitical climate.
Dollar initially focused on possibilities for America’s relationship with Asia, calling on investors to carefully watch three potential outcomes and consider the possible fallout:
- China-U.S. relations: If Trump follows up on campaign promises to impose broad tariffs on Chinese imports, then the Chinese government will likely reciprocate, and a trade war could ensue. In general, given Trump’s campaign rhetoric against China, Dollar predicted a “bumpier” economic relationship between the two countries.
- End of the Trans-Pacific Partnership (TPP): Acknowledging his own support for TPP, Dollar said the deal represented the U.S. aligning with like-minded countries like Japan, South Korea, Australia and Canada on issues like trade, foreign investments and labor rights in a way that would likely force China to come to the table and play by that group’s economic rules. Without TPP, which Dollar believes is unlikely to be renegotiated by the Trump administration, it will then be in the interests of Asia-Pacific countries to deepen their ties with China instead of the U.S.
- Black swan event: By nature, black swan events are those that cannot be predicted, but Dollar said the time is ripe to face one emerging from the Asia-Pacific region. For example, he said he still holds strong concerns about China’s financial health and a possible economic downturn due to the country’s growing debt. He said a Chinese downturn would be a major challenge for the global economy and Trump administration. Dollar predicted that North Korea could also produce the black swan event, given leader Kim Jong Un’s history of testing new leaders with destabilizing actions. Such an event could lead the Trump administration to recommit to old alliances or destabilize them.
Beyond Asia, Antholis said that a Trump presidency could, ironically, be a boon for Mexico. While neither Antholis nor Dollar expected Mexico to pay for a U.S. border wall, they did say Mexico’s large petroleum industry could benefit if Trump seeks to revitalize the conventional energy industry in the U.S.
Regarding global defense alliances around the world, Antholis said Europe and Asia rely on the existing U.S. guarantee of their security. The end of that guarantee would be “revolutionary.”
“It gives me great concern for the global economy,” Antholis said, though he acknowledged Trump has backed away from that position since his win on election day.
For more on the conference, please see “University of Virginia Investing Conference Surveys Post-Election Uncertainty and Opportunity.”