It’s the time when bluster turns serious and style becomes substance. Donald Trump’s congressional address on Wednesday was important because it was the first time that he was unable to showboat.
His previous offerings on Twitter, the campaign trail, or in presidential speeches have revealed more politics than statesmanship.
The address is so important that long lenses pictured him practising as he travelled to the Capitol. He was going to meet the guys he is going to have to work with.
He didn’t disappoint – he was as boring as a set piece dating from George Washington could be. The presidential wish list pretty well included curing disease and ensuring world peace. His address was dominated by one-handed clapping. The Republican side cheering every phrase – the Democrats sat in stony silence.
The US economy is still so dominant around the world that the American president is, even for us, our property too. Consumer spending, the biggest element of the US economy, rose 3 per cent last quarter. If Trump can increase overall US economic growth to 3 or 4 per cent – then we’re in for a party.
There’s no doubt that some of his plans are popular. The US is one of the most open economies in the world, driving off a British heritage whose commanding heights are now owned largely by foreign interests. I’m still irked by my favourite confectioner Rowntree being acquired by Nestle, for at the time Swiss companies could not be bought as freely as British.
In six years, Nestle had sacked 2,000 workers and moved the manufacture of key brands to Germany, Spain, and the Czech Republic.
There is no doubt that America’s openness has dramatically spurred global growth since World War II, notably that of China. The Economics 101 Law of Competitive Advantage states that mutual trade makes everyone richer.
But if you look at it with one eye closed, others seem to have done relatively better than the US and Trump correctly points out that trade is often not so mutual – with many trading counterparties keeping the best bits for themselves.
His address contained few policies that will easily pass Congress – but there was one diamond in the rough that might make it which was Trump’s proposal to spend a trillion dollars on replacing ageing US infrastructure. A trillion sounds like Trump hyperbole, but it is not the amount of money that is important – it is the direction of travel.
Think of all the steel, concrete, and materials like carbon fibre that will be needed. It would send the commodity markets back into the commodity super-cycle that some many predicted in 2010 would last forever during China’s irrationally enormous infrastructure spending early this century.
The joke runs that half of it was wasted in inefficiency and corruption; we just don’t know which half.
Add that to the Asian Development Bank report this week that the emerging region needs infrastructure spending of US$1.5 trillion per year, and we can see that the commodity cycle might start to look lively again.
Infrastructure spending can be a commercial proposition – albeit with very long term paybacks of one or two generations. Only governments can make the case for investment this long. Yet, massive infrastructure funding is not unusual – the US did this in the 1930s and 1950s; both of which led to great leaps in GDP growth.
It sees a return to practical Keynesianism, to spending our way out of mediocre growth, in an era of historically low interest rates. The man with an ego bigger than New York and Washington might even name the financing – the Trump Bond.
For Hong Kong and China strong US growth is ideal; in reality we still cling to America’s economic coat tails. Threats coming out of the White House about border taxes, punitive duties, and tariff walls will soon be bypassed by shifting production. Mr Trump’s bluster about China is abating but there is still enough to encourage parts of the Chinese economy to open. That’s good for China and good for world trade.
The US will never change its fundamental free-enterprise economic model to shut out the world.
Pain will have to be accepted by all sides as part of the current global economic disruption, for jobs lost in China will not be replaced by jobs moving back to the US to robotic factories.
To paraphrase Winston Churchill, “free markets are the worst form of economic system – except for all others”.