When it came, Donald Trump’s reelection to the White House as anarchist in chief wasn’t unexpected.

But the scale of his victory – and just how quickly the result was declared – was a surprise.

No wonder markets scrambled to recalibrate in the hours that followed.

The morning in London after the night before saw nearly all risk assets open higher. (Gold was one notable exception).

But as the day wore on, American stocks overwhelmingly prevailed.

US equities ended Wednesday broadly 2% up – and nearly 6% higher for the US small cap index.

But UK and European shares floundered. Indeed the German market closed down for the day.

Tariff-ick

To some extent the market was clearly trying to price in the now-certainty of President Trump – and hence the imminent possibility of some incarnation of his much-touted protectionism and trade tariffs.

For instance, here’s how high-end spirit makers traded over the past few days:

Source: Google Finance

You can see shares in all these companies fell 3-7% the day after the election. If Trump applies tariffs of 20-40% to French cognac, say, then Remy will sell less of it in the crucial US market. So that’s rational.

But note I’ve also included Brown-Forman – the US maker of Jack Daniel’s – alongside the European brands. And it fell too – more than 7% – the day after the election.

That’s equally rational. If the US imposes tariffs then so will its trading partners.

David Ricardo explained 200 years ago why countries do best following free trade principles.

But we live in an era where many people prefer tweets to textbooks, and protectionism and nationalism are back in fashion.

Musky smell

Imposing high tariffs will hurt global trade and make the US a little poorer than it would otherwise have been (although I’d concede the rest of the world will probably come off worse).

One reason the US will suffer is because the dollar will likely strengthen in a more fractious world. This will make US exports less competitive on the global stage, even excluding the tariff tit-for-tat.

Again, any student of economics knows this.

But Trump’s tariffs aren’t really designed to increase wealth. They are for winning votes, and for supporting his favoured industries and companies.

Here’s a striking example of the latter, pitching Tesla against the iShares Global Clean Energy ETF:

Source: Google Finance

Trump says he will roll back environmental initiatives and cut government programmes aimed at driving renewable energy take-up. This should benefit fossil fuel companies. Especially coal miners.

True, it didn’t work out that way last time, for various reasons.

But that’s the ‘Trump Trade’ view.

And here we can see iShares’ global clean energy ETF did modestly puke on Trump’s victory on Tuesday.

Yet at the same time shares of Tesla – a dominant manufacturer of electric vehicles and solar energy products – saw its largest one-day share price gain since the pandemic.

Of course Tesla’s CEO and major shareholder, Elon Musk, pretty much ran Trump’s re-election ‘ground game’ and turned his social media platform X (formerly Twitter) into an electioneering machine. Musk himself many times repeated false election fraud claims.

Given the relative performance of the iShares Clean Energy ETF and Musk’s clean energy and transport company following the result, it seems probable the market is putting more weight on Musk’s political proximity to Donald Trump than on the fundamentals for Tesla versus other similar stocks.

Now, we could debate all day how America ‘won’ the 20th Century.

However I’d contend that a largely meritocratic and competitive capitalist system wedded to a genuine shareholder democracy played an outsized role in pulling it and its citizens ahead.

By contrast, a return to crony capitalism and the robber baron era won’t be in the interests of most Americans.

Trump 2.0: sequel fatigue

All that said, as I write – two days on from election – there are signs the initial post-Trump moves in the markets are waning.

Those drink makers rose today. Gains in Germany are about twice those logged in New York so far.

This suggests the knee-jerk post-election market move was as much a symptom of some traders being out of position and/or hedges being unwound – plus a bit of emotional tumult – than a completely sober repricing of risk and reward.

After all, the only thing we know for sure about a Trump presidency is that it will be unpredictable.

Tariffs, for example, could be implemented at a high level. Or they could just be a negotiating tactic.

The same will be true across the barrage of uncertainty we can look forward to. Whether it be the future of international relations and bodies such as NATO and the UN, to an immigrant wondering if they’ll be deported.

The possible, probable, and unthinkable will only coalesce in the months and years ahead.

Zero sum games

If we are to take Trump and his followers at their word, the election result is a mandate to pursue an America First policy of bilateral agreements, tariffs, and regulatory rollback aimed, they would say, at making America Great Again.

That America is already the richest country in the world and by far its strongest-performing economy – with leadership in most of the key industries including AI, and with the strongest military and nuclear stockpiles – appears not to matter to the electorate.

Maybe after the huge inflation shock of the past couple of years and the hollowing out of American hard industry over the past 30, that’s fair enough, in so far as it goes.

America is an unequal society, and while the average American is much richer and earns a lot more than the average Brit, that hardly matters to Joe Sixpack enviously eying millionaires on Instagram while he struggles to afford a home.

However Trump can’t reverse the technological progress behind so much societal change.

And even in as much as his tariffs might superficially favour certain US groups, they’ll ultimately do more harm than good. Just like last time.

As per the Brookings Institute’s assessment of Trump 1.0:

• American firms and consumers paid the vast majority of the cost of Trump’s tariffs.

• While tariffs benefited some workers in import-competing industries, they hurt workers in sectors that rely on imported inputs and those in exporting industries facing retaliation from trade partners.

• Trump’s tariffs did not help the U.S. negotiate better trade agreements or significantly improve national security.

None of this would have surprised Ricardo.

But what might have raised his eyebrows is that the country with the most globally dominant firms – the biggest winner of the global order that its grandparents and great-grandparent’s forged with their sweat and blood – would now vote against its own economic interest.

A world of pain

If the US does go down the protectionist path, then the forces of Hubris and Irony will one day have their revenge.

Little comfort for those of us caught up in the consequences, admittedly.

Indeed where Trump is correct is that the UK, Europe, and the rest of the free world has benefited enormously from US economic and military leadership over the past 80 years.

If the US retreats, we’ll feel it economically and in our politics and national security. Needless to say Britain looks particularly exposed following our own quixotic decisions of the past few years.

The US can probably coast for a couple of decades however on the momentum of its enormously successful economy.

And if this political movement endures then its leaders can find other scapegoats by the time the costs are clear.

Identity theft

Of course this election wasn’t just about economics. In part Trump’s popularity must be a backlash against the extremes of the progressive agenda over the past couple of decades.

On that note, it might surprise my usual half-a-dozen critics to hear I was noting to friends last week how the Democrats’ website flagged it was fighting for 16 groups – from African Americans to Latinos to Women – but it apparently didn’t see the white male majority among its constituents:

At a time when more American women go to college then men – including for professions such as law and medicine – while the relative earnings of men without a college degree have declined for decades, you can see this could stick in the craw, regardless of your views about the bigger societal picture.

In fact early post-vote analysis suggests many minorities voted for their candidate of choice, rather than the one supposedly prescribed to some identikit community. Lots of Latinos voted for Trump, for example.

I’m all for it. Personally I’m no fan of the extremes of identity politics. We’re all equal individuals as I see it, and while structural inequalities do still exist, an enlightened government can seek to improve things without pitting groups as victims and oppressors, and putting people into boxes along the way.

Some Monevator readers think I lean very left. However as I’ve noted many times before, my own friends think I’m the semi-acceptable face of the right.

In reality I’m that unfashionable 1990s’ middleman – economically a capitalist, but socially a liberal.

That’s because when it comes to both trade and society, I believe the same thing…

…we’re all in it together.

Born in the USA

To conclude, the political shift in the US hardly has me jumping for joy. But there’s not much I can do about it.

For at least the next four years, political risk is back on the table. Especially if you’re an investor in individual companies with any exposure to foreign markets or foreign competition.

We’ll all feel the knock-on effects. From our mortgage rates – Trump’s plans seem inflationary, which will keep US rates higher than otherwise, with consequences for our own interest rate in the UK – to our taxes. For instance we’ll probably have to spend more on defence.

I’ll leave issues such as sleeping at night with an aggressive Russia on the borders of Europe as an exercise for the reader.

Finally, comments welcome, but please focus on the economy and markets.

I know I mentioned identity politics above, but that was because leaving it unsaid would clearly only present half the story.

There’s a vast Internet out there for those who want to go down that rabbit hole.

Botty mouths

On that note, since the election, Monevator comments have been inundated with spam-like postings such as this (identity redacted):

The spam filter identifies them as such. The posters have no prior history of posting on Monevator. They are not on our mailing list. I presume Russian or Chinese bot farms are the source.

But honestly it’s sometimes hard to tell the difference between bot-spam and the bold and radical views of our one or two Blimpian readers. So I’ll delete anything not about global trade, markets, or investing with extreme prejudice for the sake of an on-topic discussion. Save your fingers!

Finally I wish America – a country I’m very fond of – and all her citizens the best of luck.

Feel free to skip one more pundit’s view of the Budget if you’ve had enough. I’m not claiming to be John Maynard Keynes. This is just how I see things.

When asked why he robbed banks, the US heist wiz Willie Sutton said: “Because that’s where the money is.”

Those hit by what passes for wealth taxes in Labour’s October Budget should sigh and say the same.

Yes, capital gains taxes have gone up a little. But entrepreneurs and investors with money to spare outside of tax shelters – or the gumption to start a business – don’t do it for a few percentage points of tax arbitrage versus income tax. We do it because the £760,000 you’re left with after a now-24% levy on every £1m you make in gains is still life-changing, compared to the average UK salary of £36,000 a year.

No, you soon won’t be able to pass along a multi-million pension pot to the next-generation tax-free.

But the state doesn’t provide tax reliefs for pension savings so that your kids need never work again. It does so to encourage you to save for a time when you can’t or won’t yourself. Scrapping the Lifetime Allowance for pensions doomed the IHT ruse, and the trade-off is a sensible one.

Higher stamp duty when you buy a second-home or investment property?

Well I don’t like transaction taxes on principle. But if we’re going to have them, then at least this targets the pointy-end of the property market.

Reversing the 20-year advance that landlords made versus first-time buyers continues. With house price to income ratios still off the charts and buying in the South impoverishing-to-impossible for most young people without a suitcase of cash from mum and dad, I’m at peace with that direction of travel, too.

We tried the rest, now here’s what’s left

Real wage growth in the UK has been flat since the early 2000s. Near-zero interest rates for more than a decade after the financial crisis only inflated the wealth of those with assets – even as the bottom half that relied on lowly wages or state benefits saw their standard of living go nowhere, before the post-Covid inflation shock squeezed them for what was left.

If you’re really upset by Rachel Reeves’ Budget then you’ve probably either done very well – relatively-speaking – for the past 15-20 years or else you’ve been in denial about the state the UK is in. Count your blessings.

I’m fully aware that Monevator has wealthy readers and we’re generally pro-capitalism and getting ahead around here. So this isn’t a sermon that’s likely to have our parishioners throwing their hats into the air.

But a reckoning was overdue and here it is.

We need to manage the UK as the middle-ranking mostly pretty poor country (judged per capita) that it now is. Not pander further to the fantasies of post-2016 populism.

Some friends of mine bemoan a return of ‘the politics of envy’.

But I just see a return to the politics of reality.

A B- Budget

This was not a perfect Budget. Not even judged by my standards, which is akin to judging how well an ambulance crew performs when it arrives to find the patient already blue on the floor and gasping.

The biggest tax-raising measure – the hike in employer’s national insurance – can only hurt growth in itself, even if spending money had to be raised somewhere to stave off worse. At the margin it will make the young and low-skilled less employable.

Hospitality and retail will suffer. And personally I wouldn’t be taxing jobs harder with a potential AI revolution at the door.

But income needed to be found. This country couldn’t take another round of austerity, even if it had voted for it – which it didn’t do in voting for Labour, or for Johnson years beforehand. To get itself past an electorate either unwilling or unable to face facts, Labour had sadly boxed itself in with red lines around the other big revenue raisers. So here we are.

Even with the tax hikes, Reeves’ additional borrowing has slightly rattled the gilt market – although I judge much of the fairly modest rise in bond yields we’ve seen is ongoing recession risk being taken off the table in the US, with knock-ons around the world. I see the Budget as only adding a kicker.

So it’s far from another Disastrous Mini-Budget.

However it is a bit of Show Me The Money concern.

Paying for that protest vote

Everyone sensible knows the UK needs growth. The State needs it, and we need it in our pay packets.

Neither I nor the OBR thinks this Budget will do much for growth over the long-term. The latter forecasts a little boost upfront and then if anything a gentle decline in the long-term.

That’s not good enough.

But again, what’s the alternative?

The UK electorate voted to make itself poorer in 2016, rightly or wrongly. That bill – plus the same for preventing a potential depression during Covid – has come due. Decisions have consequences.

Even if you don’t agree with Goldman Sachs, the OBR, and other mainstream economists that leaving the EU is indeed on its way to costing us the 4-5% hit to GDP that was predicted and is playing out, not even the lunatic fringe can divine any Brexit dividend. Ironically the only reason things aren’t worse economically is because immigration has gone through the roof.

Going it alone could only have boosted the UK’s economic prospects with the deregulated ultra-capitalist ‘Singapore on Thames’ model. Boris Johnson rejected that years before Reeves took charge.

So we’re back to tax and spend – except it’s as much to keep the lights on as to invest in infrastructure.

Still, that’s better than austerity at this moment in time.

Labour’s political opponents have understandably focused on taxes going up after Labour’s election pledges in spirit implied no such thing.

Fine, but firstly their manifesto didn’t add up either. Both sides have seen this country prove for a decade that it will only vote en masse for pretty lies.

Secondly, what would the Budget haters do differently?

Cut services further? Everyone can see they’re falling apart.

Cut taxes to stimulate growth? We couldn’t even afford the last unfunded bung.

Fudge the books by not being frank about spending commitments and promising investment and ‘levelling up’ that was just rhetoric plastered on top of a crumbling national fabric? Oh yeah, we tried that.

I say be careful what you wish for.

You too can be a millionaire

As for our own wallets, well I can still put £80,000 a year into tax shelters – via ISAs and pensions – and I can invest my way to a comfortable retirement without some silly lifetime cap on my gains. The tax-free lump sum was left intact too.

None of the nightmare scenarios came true. Not even flat-rate tax relief.

If you’re a high-earner you can easily make yourself a multi-millionaire helped by those reliefs, without starting so much as a lemonade stand in terms of real risk-taking.

Can any of us – hand on heart – say that isn’t still plenty of room to do well for ourselves?

There was even the rabbit in a hat of the freeze on income tax thresholds being lifted in 2028. A half-boiled bunny for sure, but if I was Reeves I’d have extended them further and not hiked employer’s NI.

As for being clobbered by the supposedly crushing fist of the leftwing unleashed, according to the Budget calculators I’m about £1.36 a year worse off from Reeves’ measures.

So let’s have some perspective.

The actual ultra-left – Jeremy Corbyn and his fellow travellers – have penned an open letter condemning this Budget as ‘austerity by another name’.

First, do no harm

Reeves has not solved anything with her Budget but it shouldn’t make things worse.

Given the rubbish place we’re starting from, that’s no mean achievement.

With luck she’s bought time for a few good years and a fortunate break or two to get the UK economy going again. That might give us a bit more room to be bolder. We’re overdue a bounce.

But I know many of you will disagree, one way or another.

Before we kick things about in the comments, let’s remember Labour hasn’t been in charge for 14 years. Let’s not pretend the UK was humming along before somebody let the long-haired students in to seize the levers of state.

And if Liz Truss is reading, I got some stick for not totally sticking it to your Budget, because you did sort of address the elephant in the room – the lack of economic growth. Unfortunately that message was wrapped in a package as convincing as a man with a billboard crying the end of the world is nigh. Which ultimately only made the markets and the electorate less tolerant of radical action.

No, Britain signed up for gentle decline years ago. The spirt of the 52% is like an old person blustering around a care home talking about the good old days and complaining he can’t understand the nurses’ accents.

Now Barry Blimp is moaning that he has to take his medicine. I’m shocked.

Sorry, but the grown-ups are back in charge. They’re doing what they can, but that’s only so much.

As for the alternative, I’d love to hear a well-argued and costed counter-narrative spelling out a lower tax, higher growth future with a respectable welfare state left intact – as judged by the electorate, not the rich flying by to their private stand-ins. And that’s certainly not coming from the Tory leaders in waiting.

So tax, spend, and muddling on it is.

You’ve read one Budget roundup, you’ve read them all:

• How the Budget will affect you and your money – BBC
• The key changes announced – Which
• Same, but with some political response in the mix – Guardian
• A long link list to articles on every Budget measure – Money Saving Expert
• Same, but more politicised [scroll down past the big pictures] – This Is Money
• The Employer National Insurance hike explained – This Is Money

More Budget opinion:

• Paul Johnson: There are big risks lurking in this Budget – IFS
• Response to the Autumn Budget – NIESR
• Faisal Islam: Where is the growth in Reeves’ ‘Budget for Growth’? – BBC
• Aditya Chakrabortty: At last a government willing to spend, but… – Guardian
• Robert Shrimsley: Goodbye to low-tax Britain [Search result] – FT
• ‘Fixing the foundations’ Budget has done nothing of the kind – This Is Money
• Analysing Rachel Reeves’ Budget [Podcast] – The Rest is Politics
• Delivering a Budget for National Renewal – The 99% Percent
• Ian Dunt: Take stock, catch a breath – Striking 13
• Bart Van Ark: This was not the ‘productivity’ Budget – The Productivity Institute
• Dan Neidle: Agricultural property inheritance relief changes not all that  – Via X 
• Tim Leunig: There are good reasons for Reeves to raise taxes – Politics Home

Have a great weekend!

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