Forget private email servers and sex tapes. Forget men versus women. This election was decided on the following three issues:
1. Globalization.
Currency manipulation by emerging economies like China and consequent offshoring of blue-collar jobs has gutted the US manufacturing sector. Accumulation of $4 trillion of foreign reserves enabled China to suppress appreciation of the Yuan and maintain a competitive advantage against US manufacturers.
Container imports and exports at the Port of Los Angeles (FY 2016) highlight the problem. More than 57% of outbound containers are empty. Container shipping represents mainly manufactured goods, rather than bulk imports or exports, and the dearth of manufactured exports reflects the trade imbalance with Asia. Even the container statistic understates the problem as many outbound containers contained scrap metal and paper rather than manufactured goods, for processing in Asia.
Manufacturing job losses were tolerated by the political establishment, I suspect, largely because corporate profits were boosted greatly by offshoring jobs and low-cost imports. And corporations are the biggest political donors. Corporate profits as a percentage of GDP almost doubled over the last two decades.
2. Immigration
This is a similar issue to that highlighted by the UK/Brexit vote. Blue collar workers, losing jobs to globalization, felt threatened by high levels of immigration which, among other problems, stepped up competition for increasingly-scarce jobs.
3. Wall Street
Wall Street bankers with their million-dollar bonuses were blamed for the global financial crisis and collapse of the housing market, the primary store of wealth for middle-class families. While there is no doubt Wall Street had their snouts in the trough, the seeds of the GFC were laid years earlier when Bill Clinton repealed the Glass-Steagall Act with backing from a Republican congress. Failure to prosecute or otherwise punish even the worst offenders of the sub-prime mortgage debacle was seen by the public as collusion.
The Democrats in 2015 recognized that Hillary had been damaged by the private email server controversy and did their best to maneuver the election into a Trump-Clinton stand-off. Their view was that Hillary would be beaten by either Rubio or Kasich. Even the reviled Ted Cruz was seen as a threat. Hillary was seen as having the best chance against a flawed Trump who would struggle to unite the Republican party behind him.
Hillary Clinton was presented as the ‘safe’ candidate in the election, representing the status quo and stability. But that set her up for a fall as their strategy underestimated the anger of American voters and the risks they were prepared to take to bring about change.
While I am relieved that we can “close the history book on the Clintons”, to use Trump’s words, I viewed him as a lame-duck candidate, too flawed to hold the office of President. Fortunately there are many checks and balances in the US political system. It survived Nixon and should be able to survive this too. Especially if Trump takes a hands-off approach, along the lines of Reagan who was reputed to doze off in cabinet meetings. A lot will depend on his appointees and the next few months will be critical in setting the direction for his presidency. Expect financial markets to remain volatile until they have grown accustomed to the change. It could take a year or even longer.
