Donald Trump’s re-election chances haven’t been hurt by the US midterm results

• Richard Harris says Trump is a natural campaigner and there is plenty he can do with the presidential platform, so the midterm results mean little for 2020
• This is especially the case if he keeps waging his trade war against China’s ‘unfair’ practices, and winning

Thursday, 08 November, 2018,

US President Donald Trump is the best political campaigner since Ronald Reagan. Perhaps better. Unlike Reagan, he is not a politician – he is a man on a mission; to turn America into Trumptown. He targets his own supporters at the expense of the middle ground, but with aggressive energy. And now, in the midterm elections, which are usually difficult for the president’s party, the Republicans have held their own.

Trump would declare victory even if he had been thumped, but this performance is close to a win. He lost the House of Representatives but strengthened his support in the Senate. A loss of faith would have weakened his credibility and crushed his 2020 re-election chances. You do wonder how long his luck will hold. Voters have merely given him a mild rebuke and extended his mandate to “Twitterstorm” without losing too much political capital.

A bluer Congress will make things increasingly difficult for governing, but not too much for this president. His relationship with Congress has always been fragile. He is, after all, not really even a Republican. He won their trust by narrowly delivering a tax bill through Congress that cut rates for millions of middle-class Americans, and more so their companies.

That pumped perhaps US$2 trillion into an already healthy economy; creating 500,000 blue-collar jobs, pushing unemployment to its lowest since the 1960s, and narrowing the gap in economic growth with China. Contempt for the person remains but his undoubted superficial economic success has provided forgiveness for his numerous lapses, slips and gaffes.

One would expect a further surge of one-eyed-loyalty from ordinary folk but less so from grizzled old economic professors, like Arthur Laffer. The inventor of the Laffer curve (which says that, in some cases, falling taxes mean higher tax revenues) seemed infatuated with Trump on CNBC a few nights ago. There is no doubt that tax cuts are a short-term steroid shot into the veins of the economy, but at the cost of a huge extra debt burden. Our children – and through the interlinked global economy even our Hong Kong children – will pay it back through slower future growth.

Apart from the tax cuts, Trump’s successes have not come from pushing bills through Congress, but from presidential executive action. The president has a lot of personal power, especially internationally, where a split Congress is less relevant.
For Trump, policymaking is like throwing mud against a wall – some of it sticks. Cutting taxes has stuck, immigration stuck, supporting declining industries has stuck and, thankfully, the adults have pushed back against his crazier ideas.

Trade tariffs are popular and have stuck. They play not only to a cross-party demographic but also to the American sense of “fair play”. Post-war America led the world in unilateral free trade but now feels that many countries used and abused its largesse by not being quite so free – especially in levying non-tariff barriers. Trump’s rhetoric on international free trade has turned a provider of kindly economic patronage into a bare-knuckle competitor.

Trump’s trade war is not behind China’s stock market slump

Tariffs are popular across US party lines, not because they are positive (for they have a cost), but because the US’ economic strength enables them to be used as a tool to bargain for “fairness”. Now that Trump has opened this genie bottle, US trade policy towards China will not change with American leadership.

Watch: Trump talks trade, other differences with Xi

My forecast is that Trump has a decent chance of re-election – his future opponent has less than two years to get his or her act together. We do know that while Trump is there, a trade deal can always be done. Chinese policymakers will be well-advised to study Trump’s book, The Art of the Deal. He follows it to the letter.

A deal on tariffs won’t end the US-China economic cold war

All the sound and fury of a midterm election signifies nothing. November and December are historically the S&P’s best months – and I expect a Santa rally in equities this year too, if only because they are reacting to the sharp weakness of the last quarter.

It is unlikely that Trump will follow Reagan in leaving office as a beloved elder statesman or that Congress will not remain gridlocked. If he is re-elected, his personal policies will be a lame duck from 2020 to 2022, and for the last two years a dead duck. Let us hope that we do not have a financial crisis during that time – though history says otherwise.