Donald Trump’s visit to Auckland in August 1993 lasted just a few hours, and his visit on a blustery day to the proposed Auckland Casino Ltd site, the old central railway station, took only a few minutes – enough to greet intending partners, be greeted by a few protesters and make a quick tour of the vacated station building.
It wasn’t hard to see a man on a mission which wasn’t going to include Auckland. He was here to assess a deal to his advantage, not to see where he might fit into a relatively small & tightly regulated venture in an outpost.
But now, from New Zealand’s support of the UN Security Council resolution on 23 December declaring Israeli West Bank settlements a flagrant violation of international law, as a supporter of the Trans Pacific Partnership and as an eager signatory to the China-led Asian Infrastructure Investment Bank, New Zealand might just get marked down among the Bad People.
On that miserable August day he also visited the Casino Control Authority, which had the task of assessing intending casino owners & operators. Mr Trump’s financial position at the time was precarious and his lead development partner, the National Maori Congress, went on to present a poorly devised case.
The Maori congress’s partner in premises licence applicant Auckland Casino Ltd, New World Development Co Ltd of Hong Kong, was a major developer there and in mainland China but showed little understanding of what was required in Auckland.
Not surprisingly, in December 1993 the authority awarded the casino premises licence to Brierley Investments Ltd’s slicker Sky Tower project. The casino business has been a highly successful venture, but would have been far less of one if Harrah’s had stayed as SkyCity’s operator or Trump had won the operating licence. SkyCity has ridden the local ups & downs and come out well ahead. The American operators would have crawled into their shells in bad times back home and the outpost venture would have suffered, or been sold.
Ability to sum up a position flows through Twitter
Mr Trump was a man in a hurry then, with an evident ability to sum up his surroundings & company. He’s been in financial straits many times since then which would have knocked most serial entrepreneurs off their perch, and every time he’s come out proclaiming victory. Since he vanquished Hillary Clinton in the US presidential race on 8 November, however, he’s surpassed himself in summing up opponents, the people who are going to fill executive roles in his governance ensemble, the foreigners he wants to dominate.
His master stroke has been the use of Twitter. His relentless tweeting has been derided by many, but it’s worked. Before he’s taken office he’s espoused the policies that will be followed and his lackeys, the generals & Goldman Sachs entourage fast filling executive posts, have mostly fallen into line. They all know the words they’ll hear if they get out of line: “You’re fired!”
The result is that, before he even gets the keys to the White House on Thursday, Mr Trump has directed a total revision of the natural order.
Hardlining versus working with nuances
Socialist policy, very limited in the US anyway and resisted by a high proportion of the electorate, will be reduced to the corporate capitalist version: What’s necessary to keep the workforce working.
Mr Trump acknowledges governments as providers of services, but every service involves a deal. He wants his people to drive hard bargains, starting (via Twitter) with aircraft construction contracts, pharmaceutical contracts (via his media conference this week), the Mexican wall, trade with China and China as a currency manipulator (is there a country in the world that doesn’t at least try to manipulate its currency?), reordering trade relations with many other countries, decreeing boundaries which other nations ought not pass (as in the South China Sea).
The US was going to get a better deal than it ought to have from the Trans Pacific Partnership – for its pharmaceutical manufacturers & licence rights, for corporates & their ability to contest national positions. That partnership began as a small affair between 4 countries and expanded, ultimately including the largest Pacific trader, the US. It could continue to a signed partnership excluding the US, but it would be a much less effective agreement.
In the bluster of the Twitter outpourings, Mr Trump has made it clear he wants deals that are fair to the US. Which, as his desire to force carmakers to produce vehicles in the US rather than next door in Mexico shows, won’t be “fair” to Mexico.
It’s an example of bullying because you can, but it’s a course open to unintended consequences such as an increase in illegal migration through Mexico to the US, wall or no wall.
Always, the unintended consequences
Another unintended consequence, though, is the impact of US arrogance on other nations. I’ve always seen the 9/11 attacks on the World Trade Centre in New York and Pentagon building in Washington in 2001 as at least partly a response to that arrogance, whereas the official US view then & since has been that this was an unjustified terrorist attack – without cause.
As China builds islands in the South China Sea – undoubtedly heightening the consternation other nations bordering that sea feel – the US comes in heavy-handed: Do as we tell you.
China – through both government & private-sector companies – has been investing heavily in businesses & property around the world, including landmarks around the US. It has also been lifting the international importance of its currency for bilateral trade, particularly with Russia, and has been forging new trade partnerships – BRICS (Brazil, Russia, India, China & South Africa), the New Silk Road across Asia to Europe, the maritime Silk Road, the Asian Infrastructure Investment Bank and, perhaps most important of all, having renminbi added on 1 October 2016 to the basket of currencies used to value International Monetary Fund special drawing rights, joining the $US, euro, yen & pound.
According to currency website The Balance, over 85% of forex trading involves the $US and 39% of the world’s debt is in $US. When the global financial crisis hit in 2008, non-US banks had $US27 trillion of international liabilities denominated in foreign currencies, and $US18 trillion of that was in $US.
The rouble & renminbi aren’t going to take over, but it will suit Russia & China to have a strong alternative, and IMF special drawing rights can achieve that for international trade, if not for consumer transactions. They were calling for such a move before the global financial crisis.
China in, US heading out?
China’s president, Xi Jinping, will deliver the opening address at this year’s World Economic Forum gathering in Davos, Switzerland, on Tuesday, and he’ll be accompanied by the largest Chinese delegation since the Davos meetings began in 1979. As the US erects barriers and its almost-president tweets decrees, China is opening itself to wider relationships, including drawing closer to the far right of capitalism.
However, it’s conceivable that the US & Russia could also draw closer as many of their interests merge. Russia is now a non-communist country, albeit still autocratic; Mr Trump’s style is autocratic, albeit the country adhere’s loosely to a democratic veneer. Both countries’ governments have played others to their own advantage, and in some theatres such as Syria it may suit the US & Russia to be on the same side at times (simultaneously, unlike in Afghanistan).
A dealmaker first & last
All of the above is about position-taking, some for commercial gain, some for international power.
Mr Trump looks at all of this in terms of dealmaking, which he emphasised during his press conference last Thursday: “I want to bring the greatest people into government, because we’re way behind. We don’t make good deals anymore. I say it all the time in speeches. We don’t make good deals anymore, we make bad deals. Our trade deals are a disaster. We have hundreds of billions of dollars of losses on a yearly basis – hundreds of billions with China on trade & trade imbalance, with Japan, with Mexico, with just about everybody. We don’t make good deals anymore.
“So we need people that are smart, we need people that are successful, and they [his Cabinet appointees] got successful because generally speaking they’re smart.”
A family of traders, with connections
Outside the political sphere, Mr Trump’s life has been about commercial deals, and his wider family has followed the same trajectory. Attempts are being made to separate family commercial life and political roles, but there are natural crossovers. For instance, Mr Trump’s daughter Ivanka and her husband, Jared Kushner, are moving to Washington for Mr Kushner to take on a role in Mr Trump’s administration.
The Washington Post noted last week that Mr Kushner’s family had donated to pro-Israel causes, hardly surprising given that the New York property development family is Jewish. But it is that kind of connection that makes it so much harder for Mr Trump to lock himself into a “for everybody equally” role.
Those Jewish connections will have a bearing on his view of the Security Council resolution, and also of the countries that voted for it, New Zealand among them. ‘Where was that country again? Oh, yes, I went there one day, cold & blustery, they didn’t like me, didn’t like me.’
In contrast to “draining the swamp” of insider vermin, all Mr Trump’s business & family relationships make connections to the swamp – to financiers, Goldman Sachs in particular, to people who can pull levers – that much more important for a person who’s spent his life combatting regulators. And now it’s the swamp dwellers who are rising to lead positions in Mr Trump’s Cabinet.
You see a president (swearing in Thursday) bent on certain courses – Israel, China, corporate power, finance sector.
The tariff wars are already underway. China already had tariffs on imports of corn-based animal feed from the US, and has increased them. Mr Trump has threatened a 45% tariff on all imports from China, effectively a calculation to make up for alleged currency imbalance, and has threatened carmakers manufacturing in Mexico.
Most of the American focus is on Mr Trump & his outbursts, little on what Mexico might do or how it will cope with the sudden departure of whole industrial sectors. This is the kind of action that can set off international turbulence. China has already been lifting its internal trade, trade around Asia rather than with parties outside Asia may rise, the Silk Road routes will increase trade across continental Asia and over to India & Africa.
The Trump argument is that China has been devaluing its currency to make its exports more competitive. The New Zealand way of doing this is for the Reserve Bank governor to remark that the $NZ is overvalued and for nothing much to change. The US has effectively devalued by printing billions of dollars through quantitative easing since the global financial crisis began, but its exchange rate has climbed over the last 4 years.
Unilateral trade actions can easily flow into redirection of trade, and will certainly encourage affected nations to move away from the greenback as international currency.
The anti-UN tirade unleashed
Fast & determined action on a number of fronts by Republican politicians means a vote to pull the US out of the United Nations and oust the United Nations from New York could well pass this time, spurred on by the UN Security Council vote to pillory Israel for continuing to develop West Bank settlements.
The bill received little support when former Congressman Ron Paul introduced the American Sovereignty Restoration Act in 1997 (and he continued to introduce it annually for the next decade). Other senators, including Ron Paul’s son Rand, have tried with similar bills without success.
While the US under new management is determined to assert its right to police its trade routes, a decision to send the UN packing would be a fitting conflicting conclusion to the withdrawal from pax Americana. It could make that policing so much harder, in a world where the US would have far fewer friends.
Impacts will flow
None of the above is directly related to property development, investment or regulation, which are the main topics on this website. But all of the above concerns international commerce, which fluctuates like the tides. Except, sometimes, somebody builds a wall where it shouldn’t be, and the tide gets angry.
The disaffected of America got angry and elected the outsider candidate as president. Together, they want to hurl their anger at others. In politics and in commerce, that can unleash powerful repercussions.
How does all this affect us in New Zealand?
On Wednesday, I’ll write about some New Zealand issues, again not all directly related to specifics in property, but related when you think about it.
World Economic Forum
New York Times, 11 January 2017: Press conference transcript
Washington Post, 7 January 2017: Trump’s son-in-law poised to resign as CEO of real estate company
New American, 6 January 2017: Bill to get US out of UN introduced in new Congress
The Balance, 22 October 2016: Why the dollar ($US) is the global currency
World Economic Forum, 26 June 2016: Why is China building a New Silk Road?
World Economic Forum, 2 January 2017: 5 leadership priorities for 2017
14 August 2016: Propbd economic update Sun14Aug16 – the greenback’s future
4 July 2016: East Asia & Pacific central banks shift bond fund into local currencies
1 May 2016: Propbd economic update Sun1May16 – Rethinking boundaries, Silk Road unity
Propbd economic update M8Feb16 – Big investors’ targets, ETFs to keep growing, Chinese planner positive, Portents of crash, Silk Road, global way forward
World property Wed14Oct15 – LJ Hooker IPO, Goodman UK fund, Silk Road forum
World property T2Jun15 – Stepping stones across Central Asia
1 July 2015: NZ formally signs up to Asian infrastructure bank
30 March 2015: China & IMF agree reform programme
2 May 2014: Canadian professor says conflicting trade views mitigate against TPP success
16 December 2006: Bernanke tells China to free currency, become consumer society
17 December 2004: NZ joins Asia Bond fund
Attribution: 1983 recollections, US news observations, New York Times, Washington Post, New American, World Economic Forum, The Balance.