by Michael Sonenshine

Like many political observers I was surprised by Donald Trump’s victory. I didn’t expect him to win the Republican primary to begin with. So in the coming weeks I’ll be buying the first beer for a few of my friends who rated the Donald’s prospects of winning higher than I did.

Not only was I wrong about Mr. Trump’s victory, I was also wrong about the outcome of the Brexit referendum this past June. Being wrong twice on such big event leaves me wondering what I’ve misunderstood or underestimated.

As a credit analyst and investment manager I also have to wonder how this event will impact the global economy in the months and years ahead.

For the record, I didn’t vote for the Donald. I voted for the Hillary. Growing up in New York I followed his career and grew to dislike his business style, how successful his business was.

I detested his campaign rhetoric. The words that come to mind are vulgar, sexist, racist and arrogant. Personality aside, I also believe he doesn’t have the skill set I want in a President.

Having said this, I believe he is intelligent and practical. What he lacks in experience he can compensate for in his selection of staff and cabinet. He leans toward economic liberalism and less government intervention and regulation.

My guess is that his policies and his cabinet will reflect these general principles. If this happens America’s economy will continue to improve and the lives of many Americans will be better.

I am optimistic he will bring smart, capable policy advisors and cabinet members into the administration, manage them well, listen with respect to Senate and House members on both sides of the aisle, he stands a good chance to take the country in a good direction.

Hopefully he will conduct himself differently, better, as a president than as real estate developer and as a political candidate. I’d love to see him succeed as a president and do great things for America.

My fear is that we’ll have an embarrassment in the White House who represents the worst things America can be rather than the best and makes decisions that turn America into a country filled with hate, violence, racism, sexism and everything else I heard come out of his mouth on the campaign trail.

I’ll be happy to settle for a neutral, boring, neither good nor bad, President Trump whose presidency goes down in history as unremarkable.

I’ve come to the view that neither of the victory of Brexit or the election of Trump reflects some fundamental paradigm shift in the way our world will function in the months and years ahead.

This is not to say we should ignore them. Rather, we should put them in perspective for what they are – clear signs that a rising proportion of the electorate rightly or wrongly fees disenfranchised, unheard, frightened and distrustful.

The victories of Donald Trump in the US and the Brexit campaign in the UK reflect the ability of politicians to tap into that sentiment and amplify its voice. In an open, democratic society these sort of victories are healthy. They encourage debate and they force policy makers to listen more closely to the needs of the population.

With this in mind, I highly 5 take-aways we can draw from Donald Trump’s victory.

Take-Away Number 1 – Spending More Doesn’t Win Elections

Recent campaign filings show spending on Hillary Clinton’s campaign was nearly US$700 mn, nearly 2.5 times the $250 mn. Donald Trump spent. Consider the failed campaigns of Donald Trump’s Republic rivals. Jeb Bush’s campaign spending was nearly $150 mn and he was one of the first to drop off the campaign trail. Other big spenders were Florida senator Marco Rubio ($150 mn) Ted Cruz ($130 mn) and Dr. Ben Carson ($80 mn).

Candidates can plaster the walls with posters and flood the airwaves with commercials incessantly but the law of diminishing returns is immutable. Preaching to the converted offers little value. People grow tired of hearing the message and start tuning it out.

Take-Away Number 2 – There’s a Big Gulf Between Rhetoric and Reality

Politicians compete not only by selling their view to the electorate, but also by saying things the electorate wants to hear. Campaigns are political theatre. After the election is over the winners face the very real task of governing and confronting realities.

During the campaign many politicians cast Donald Trump as a villain. He faced harsh criticism from within his own party and at times the exchanges became vituperative and personnel. It was a disgusting and vulgar chapter in America’s political history.

Now we face a new world. The election is over. The Republicans who control the House and Senate have a legislative agenda. Whatever legislation they propose must be acceptable to the President and vice versa.

The Republicans have a majority of just 1 in the Senate. Whatever Mr. Trump said about Washington on the campaign trail, he will have to work with his fellow politicians, be they Republican or Democrat or his presidency will be weak and ineffective and he’ll spend much of the next four years convincing the electorate to send different politicians to Washington.

Take-Away 3 – Trade Policy With a Big Stick

Trade and foreign policy are the areas where a president’s influence and powers are greatest. Mr. Trump has been an outspoken critic of NAFTA and similar free trade agreements. He sees such deals as an attack on US jobs and one of the reasons for the decline of manufacturing in the US.

When President Trump sits down to seriously study the history of free trade agreements he will see that the North American Free Trade Agreement (NAFTA), signed by President Clinton was negotiated principally by the elder President George H.W. Bush and that when the deal passed in Congress it enjoyed wide spread bi-partisan support. Historically the Republican party has been the advocate of free trade.

He’ll also find that since the passage of NAFTA nearly 25 years ago the US has entered into 20 other free trade agreements under the administrations of the younger President George W. Bush and the outgoing President Obama.

He’ll be pleased to know that the Office of the Trade Representative has evolved over the years to the point where it works on trade issues in as cooperation with 19 other Federal Agencies. It has offices around the world with a staff of 200 and 28 advisory committees taking input from more than 700 private sector citizens. Depending on how you look at it OTR either provides the real serious infrastructure needed to implement and administer trade agreements or it is a beehive of lobbyists and special interest groups.

Most importantly, when President Trump sits down to think about America’s trading policies he’ll quickly realise that trade policy has winners and losers on both sides of the fence and in both camps. It’s easy to point a finger and look at how many jobs left the US. But that’s only part of the story.

Another part of the story is that many of those jobs might have left the US in any case, free trade agreement or not. Also, many of the goods that Americans purchase cost less than they would otherwise in the absence of a trade agreement. Finally, no discussion about the merits of trade agreements is complete without looking at the jobs that are created, the services that are exported and the earnings of the people that fill those jobs.
Conventional wisdom is that NAFTA’s days are now numbered and that the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP) will not go forward.

Nothing can further from the truth! More likely what will happen is that Mr. Trump will quickly come to understand who in America loses and who in America wins from each trade agreement. He’ll look at how many jobs can be created, how many jobs are likely to be lost. He’ll look at which industries are likely to suffer and which industries are likely to prosper. He’ll look at which goods and services are likely to be more expensive and which are likely to be less expensive. He’ll also understand that he will have to work with those winners and losers in the years to ahead and he’ll calculate the impact all around including that cost or gain to his presidency.

He’ll have some long, tough negotiations with his trade counterparts, which probably is a good thing. There will be political theatre and strong statements from abroad as well as from the President’s domestic critics.
Behind the scenes there will be negotiating, more winners and losers. One of Donald Trumps greatest strengths is that he well understands negotiating processes, he understand how to posture and how to present the positions.

In the end, he’ll probably win some concessions, not as many as he’d like, but some anyhow. Until we get closer to the reality how much the net gains will be and who in America will win and who will lose is difficult to say. In the end we may have the status quo.

The Donald we saw on the campaign trail painted with an incredibly broad brush. All those jobs left America for reasons for more complex and far more varied than NAFTA. Many of those jobs would have left with or without a trade deal. Even if they had stayed, the cost might have higher prices for those goods – transfers of wealth from consumers to businesses. Or the factories that stayed might not have been able to compete at all without tax breaks and government support – transfers of wealth from the public purse to to private business – the sort of stuff Republicans except when they are on the receiving end.

The key take-away from the election of Donald Trump is that we are likely to see more criticism of the raft of trade agreements, followed by tough, but firm negotiations aimed at actually getting to a deal Donald Trump can present as a winning deal.

NAFTA, TTIP, TPP and the others should not be presumed dead. Rather, they should be more appropriately thought of as patients waiting to see the doctor and opportunities for President Trump to succeed. Interestingly TTIP comes with a potentially interesting kettle of fish. The EU will want to find a way to get to yes on TTIP at the same time as the UK, on the verge of exiting the EU, potentially, will want to develop a trading agreement.

Take-Away 4 – Wave Goodbye to ObamaCare? Not so fast!

President Trump has promised to “repeal and replace” the Affordable Care Act (ACA), also known as ObamaCare. This act was passed at a time when the Democrats controlled the house and Senate and could pass the act without any Republican support. Since that day, whatever the merits and the good intentions of the act are, it has become a source of contention between both parties and a symbol of the divisiveness and lack of bipartisan initiative in America.

Here we are back to the rhetoric versus the reality. Donald Trump’s rhetoric was to repeal and replace. Reality is that repeal without something at the ready to replace could create much bigger problems. A more likely outcome is that either the existing act will be amended or the repeal and then the replacement will happen practically the same day.

Millions of Americans now have healthcare access as a result of the Affordable Care Act (ACA). Repeal without replacement for sure imposes cost on those millions of now insured people, many of may be among his supporters. Repeal without replacement also means all the rest of the insureds will bear cost in terms of higher premiums. Repeal without replacement will force hospitals and insurance companies to bear the cost of treating the uninsureds. Repeal without replacement will be a mess!

What I hope is that Congress will change its ugly ways, find a bi-partisan solution to fix the ills of the ACA and make things better in America all around. Whether that is done an amendment or repeal and replace is irrelevant and unimportant.

America spends 17% of GDP on healthcare, nearly 2X what many other countries around the world spend. I don’t know whether we should blame doctors, hospitals, insurance companies, pharmaceutical companies, lawyers, regulators or the fact that so many Americans are uninsured or underinsured. It’s a collective and complex problem. Fixing the problem means there will be winners and losers, all whom have strong lobbying ability and influence in Washington.

Frankly speaking, I’m not a healthcare expert. What I can say with certainty is that my wife and I are insured in the Czech Republic. I’ve seen the kind of care we and our friends and my employees get in the Czech Republic and elsewhere in Europe. I’ve seen the value we get for our healthcare spend and I can honestly say I’d much rather get sick in Prague than in New York.

Even our dog gets state of the art medical care for a fraction of what it would cost in the United States!

Take-Away 5 – Nothing Really Changed on the American Political Landscape

Donald Trump’s victory defied conventional wisdom. He ran as an outsider within the Republican Party and spent far less than his rivals. He is socially quite liberal compared to his rivals. His rhetoric was highly offensive to any reasonable person. And yet, the electorate clearly forgave him for all of that.

During the campaign he laid claim to having begun a political movement. It’s hard to argue he really has changed anything in America. He rightly recognised that his best chance at getting elected was to present himself as an agent of change, a person who would challenge the status quo and restore something that seems have been lost in amid the complexities of a changing society. That message resounded loudly on the electorate.

It’s important to realise the America of today is much different than the America we saw several decades ago. The population is increasingly rapidly. It’s estimated that over the next 30 years population will grow by nearly 40% from present levels. Population growth is fastest in the cities and there is a consistent migration to the south and south west. Many towns twenty years ago were quiet villages where everyone knew each other. America today is far more culturally and ethnically diverse than it has been in the past and this trend looks set to continue.

Sheila Suess Kennedy, J.D., Professor of Law and Public Policy in the School of Public and Environmental Affairs at Indiana University Purdue University at Indianapolis, wrote eloquently about this issue in a post on inequality.org. She pointed to American inequality, the diminishing numbers of people who can be categorized as middle class, and the widening gap between wealthy Americans and everyone else and said that progressives (She blogs at www.sheilakennedy.net)

America is still the world’s largest manufacturer, with output exceed that of China and India combined. Still, at least one in every six manufacturing jobs has left the country since 2000. Because population tends to concentrate around manufacturing facilities, this change has scarred many communities. Retraining is far easier said than done. The landscape of rural America is filled with people that have been left behind in world that changed around them.

The collapse of the financial sector in the wake of the sub-prime mortgage crises exacerbated the problems. Drive through many cities and towns in America and you’ll see homes boarded up that were repossessed. You’ll see urban decay. You’ll see gang violence. You’ll see a communities and police that don’t trust each other. Add to this mix terrorism, and a global refugee crisis.

It’s therefore no wonder a large portion of the electorate sits up and takes notice when a Donald Trump comes to town, speak to them in terms they understand, points to their fears and insecurities and offers them a solution. They feel Washington has abandoned them and they are probably not far from the truth. Getting things done in Washington for the good of the country is a tall order when Congress votes along party lines and it seems nothing gets done at all.

Irrespective of whether or not Donald Trump really can deliver, nearly half the electorate is ready to listen and desperate enough to give him the chance.

Looking at the electoral maps and the election results over the last few decades, there is little evidence than anything really changed in the American political landscape at least since 2000, other than the arrival of savy marketer adept at making his case in the media. Bill Clinton and Ronald Reagan changed the political map far more than many of their predecessors and certainly more than their successors. Note the following:

  • Donald Trump didn’t have a majority of the popular vote. In fact, Hillary Clinton polled 48.5% to Donald Trump’s 47.9%.
  • Nearly all the states that voted Democratic in the last several elections voted strongly for Hillary Clinton.
  • Donald Trump’s victory came from very thin victories in 3 states he managed to swing – Michigan, Wisconsin and Pennsylvania.
  • It’s arguable that Donald Trump’s victory can be attributed to a strategic failure on the part of the Clinton camp. While Trump was wrapping up his campaign in Michigan, Wisconsin and Pennsylvania Hillary Clinton was holding rallies in Florida and North Carolina, both states that have large Republican populations and where she lost by wide margins.
  • Barrack Obama won with significantly strong majorities in both of his campaigns. The electoral map was similar to what it was this year, except that Mr. Obama captured Florida, Michigan and Wisconsin, Pennsylvania and Iowa.
  • George Bush defeated Al Gore in 2000. Like Donald Trump, Mr. Bush lost the popular vote by a slim margin. Unlike Mr. Trump George Bush won in Colorado and New Hampshire and lost in Michigan, Wisconsin and Pennsylvania.
2016 – Trump vs. Clinton
2012 – Obama vs. Romney
2008 – Obama vs. McCain
2000 – Bush vs. Gore
1992 – Clinton vs. Bush
(Clinton won states that no Democrat had won since Carter was elected  in 1976)
1984 – Ronald Reagan vs. Walter Mondale
 
1976 – Carter vs. Ford
 

Big Strategy Lesson!!!!!

  • Fight the battles you are likely to win rather than those you are likely to lose. If Hillary had focused on Michigan and Pennsylvania she might have been headed to the White House.
  • While you are off trying to capture new ground, you may find your opponent has breached your defenses and cost you the war.

A week before the election an article ran in the Atlantic Magazine addressing this very issue. Hillary Clinton’s spending was highest in Ohio, North Carolina and Florida. These were states she either wanted to win or believed she could win. She couldn’t have been more wrong! Donald Trump won those state with thin, but comfortable margins.

Her spending was lowest and her campaign stops fewest in the states she really needed to win – in particular, Wisconsin, Michigan, Pennsylvania. These three states gave Donald Trump 46 electoral votes and the presidency. Yet his margins in these states were in all cases less than 1%.

In a genuinely insightful and well written piece, Is Trump Outflanking Hillary Clinton, Ronald Brownstein pointed out the Hillary Clinton was spending time in states that were Republican leaning rather than in states that were traditionally Democratic but could be lost if Donald Trump managed to appeal to marginalised voters who believed the Democratic nominee was out of touch with them.

I’m not a political strategist by training. I’m a credit analyst and an investment manager. At the William E. Simon Graduate School of Business I read many case studies about corporate strategy that drew attention to these similar principles business. Hindsight is always 20/20. It’s easy to play Monday morning quarterback and second guess the Clinton campaign strategy.

The Clinton camp underestimated the strength and appeal of Donald Trump’s message, which above all played on people’s economic and social fears. Some historians are may look back and say this was just the way the cookie crumbled and that her team miscalculated or was unlucky. Others will be more critical. They will look back and say that candidate herself was just too arrogant and too out of touch with her constituency in states that she really should not have lost.

Hillary Clinton’s loss is especially ironic, considering that her husband, Bill Clinton, when running to oust incumbent George H.W. Bush in 1992 said the reason he will win the White House in 1992 is because his campaign was focused on the one thing that mattered most to the rank and file electorate in America – the economy.  

(Graphic courtesy, inequality.org)

Michael Sonenshine is CEO of Symfonie Capital LLC. He manages the Symfonie Lending Fund, Symfonie Angel Fund and the SymCredit P2P lending platform.