How to read Trump

As President, Trump has pledged to reset the White House policies on “America First” basis. But will he deliver?

Around the world, there is great apprehension and much speculation about potential Trump scenarios. Nevertheless, not everything that is possible will happen, even with Trump in the White House.

For all practical purposes, the Trump administration’s ability and willingness to achieve its stated objectives can be illustrated with three probable scenarios.

‘Walking the talk’ scenario

The first scenario is that Trump will “walk the talk.” This is what his constituencies expect. Consequently, any moderation risks being seen as a betrayal.

In this scenario, Trump is more likely to walk the talk than not, as evidenced by his new trade policy appointments. He chose Peter Navarro – the author of The Coming China Wars (2005) and “Death by China” (2011) and “What China’s Militarism Means for the World (2015) - to head the new National Trade Council (NTC), which will oversee industrial policy in the White House. In turn, Navarro's friend, former CEO of America’s largest steel company Nucor, Dan DiMicco, is now Trump’s trade advisor, while former Reagan administration official and vocal China critic Robert Lighthizer will be the new US Trade Representative.

In this view, Trump administration is set to reverse 70 years of US-led free trade regimes.

‘Sober realism’ scenario

The second scenario is that, as candidates, American presidents say one thing, but, as president, they do something else. President George W. Bush promised “passionate conservatism,” but achieved war and deficits. President Obama pledged massive changes but ended up fostering the military-industrial complex, which led to Eisenhower’s warnings already in his Farewell Address in 1961.

In this view, Trump will adjust to realities. In China, some observers expected Trump to be a pragmatic businessman who will talk tough but only to deal from a better position. Yet, Trump is not a typical conservative, cautious, bland-speaking CEO.

While Trump will have to adjust his stated objectives in an unpredictable global landscape, he will enjoy extraordinary execution power. Today, Republicans control the White House, the Senate and the House of Representatives. Consequently, whatever the administration will decide to do is likely to be bigger and bolder, move ahead faster and have greater consequences.

In this status quo, “sober realism” may not be as likely as with Obama or Bush who faced a hostile opposition in the Capitol Hill. Political power favors unrestrained governance.

‘White black swans’ scenario

The most unpredictable, yet potentially most devastating scenario is the “white black swans” scenario. In this view, Trump administration may make policy mistakes, which can result in low probability but highly consequential adverse consequences.

That’s what happened in the 1930s with the Smoot-Hawley Tariff Act, which initially seemed to work quite well but soon caused other nations to retaliate with even higher tariffs and barriers, which ultimately paved the way to a world war.

Today, the Trump administration’s protectionist initiatives may at first strengthen the US dollar and even markets. But over time, a stronger dollar will make US exports less competitive and defuse exuberance in markets. More importantly, unilateral tariffs tend to result in tit-for-tat unilateral retaliation, which will mitigate the benefits of the original tariff and compound costs over time.

In the coming months, all Trump initiatives – including the administration’s proposed tax cuts, trade policy, manufacturing plans, infrastructure investment, stricter immigration, climate change reversals, balancing power games, military spending and so on – should be seen in light of these three scenarios.

Nevertheless, the early signs suggest that the Trump administration will, at least initially, shun sober realism and walk the talk. And that, unfortunately, translates to greater potential of ‘white black swans’ over time.