Stocks

Is Donald Trump taking a perilous path?

J MULRAJ | Updated on January 13, 2018 Published on February 17, 2017

Donald Trump

Trump is offering bilateral deals to UK and India, and perhaps also China. But against Iran, Russia, Mexico and even Germany, his tirades continue.

Donald Trump’s election promise was to make America great again. As of now, he is grating everyone again and again! Alongwith his chief strategist, Stephen Bannon, (a man who loves war, and predicts one with China within 5-10 years), Trump is upending all relationships. According to German newspaper Der Spiegel, ‘Trump and Bannon pursue a vision of autocracy’. Investors would do well to study the profile of Bannon, who calls himself a Leninist. When asked what that meant, he said he wanted to destroy the State, bring everything crashing down, and destroy all of today’s establishment!

A cause for concern

The duo’s statements, and responses to world leaders, give several causes for concern.

China: Even before Trump, the US viewed China’s accelerated rise in economic (and, consequently, military) power with alarm. In a must see documentary ‘The Coming War on China’, John Pilger, the producer, points out that whereas international media covers the building of runaways on man made islands in the South China Sea, there is no mention of the 400 US bases encircling China, which provoke it to act in self defence.

Increasing military expenditure: Military technologies are horrendous, with each country acquiring better missiles to attack with and improving their anti-ballistic missile technology systems. Both the US THAAD and Russia’s S400 anti-missile systems are frighteningly awesome (India has agreed to buy five systems from Russia, and has also developed, jointly by Tata and L&T, together with DRDO, the Pinaka system which has been tested successfully).

There are several other military technologies. The capex on such systems are, however, destructive, by definition. John Ma, founder of Alibaba, pointed out at Davos that American companies have made huge profits, but the money has been squandered ($11 trillion) on wars.

Pressure on India

India too, has to spend on military technology, to counter the threat of hostile neighbours. Thus, the Trump agenda of destabilisation will result in money that could have been spent on building infrastructure, to be spent on building destructive weapons, instead.

End of multilateralism: Trump has withdrawn US participation in the Trans Pacific Partnership (TPP), a multilateral agreement between 12 countries, to cut import tariffs for 18,000 products. Trump and Bannon prefer bilateral agreements, because it is easier to pressurise one (smaller) country under a bilateral agreement than to stick to the terms of a multilateral one. Trump is offering bilateral deals to UK and India, and perhaps also China.

There are others Trump tirades against, including Iran, Russia, Mexico and even Germany. The ability of the US to pay for everything (more military spending due to escalation, more product prices due to trade wars and more infrastructure spending) is dependent on the ability of the US to sell its bonds.

India, however, is in a sweet spot. The government has addressed some of the structural problems (such as the perennial shortage of power) and is solving others (such as the continuing NPA problems in banks). Green shoots are visible. The stock market would do well, barring a misadventure by Trump/Bannon.

(The writer is India Head, Euromoney Conferences. The views are personal.)

Published on February 17, 2017
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