Experiencing the US election while driving from Dublin to Cork last week, I was amused by the Irish determination to convince themselves that the Kamala Harris-led Democrats’ victory was a fait accompli. There was no luck of the leprechaun this time around for the Celtic Tiger. Ireland’s economic fortunes — impressive as its emergence from Europe’s poor cousin to a leading economic light has been — are largely tied to betting all its green chips on the US. But Trump 2.0 threatens to upend that, emblematic of my grave concern for the world after last week’s historic election.
First, a few caveats. A friend in Dublin, who describes herself as socially Democrat but fiscally Republican, spoke openly about how woke culture has metastasised into something fundamentally off-putting for most voters. “The pronouns have gone too far,” she said. She’s a high-powered executive returning to SA’s competitive liquor industry after years with Coca-Cola in Ireland and a fierce advocate for women in business and diversity.
When you start interfering with children’s gender anxiety during puberty, prescribe puberty blockers, muddle what immigration means to legal immigrants, and brandish diversity, equity and inclusion credentials in people’s faces as an act of vengeance, it’s unsurprising.
Wall Street Journal columnist William Glaston, writing in editor Yair Zivan’s excellent new book, The Centre Must Hold (Zivan is a senior adviser to Yair Lapid, leader of Israel’s centrist opposition party), calls for the centre of global politics to seize this moment. “It is possible to regard this form of politics as merely a concession to reality. But centrists often go further, embracing epistemological humility. Not only does human reason not suffice to choose among competing religious doctrines, but also there are many opinions with legitimate but competing conceptions of what gives meaning and purpose to life.
“Humility in understanding suggests moderation in practice. After all, one may argue, finding a way to accommodate competing conceptions is not only the best way of honouring their equal claims; it is wise politics as well. Proceeding too far, too fast in any one direction can be seen as unfair to those who may feel marginalised by non-incremental social change.”
Most exit polls seem to point to this being an election where voters responded to the Republicans’ focus on core issues while Harris seemed content to run on vibes and celebrity endorsements.
And while many try to characterise Trump and, by extension, the Republican Party as far right, in reality, the GOP has remained closer to the centre than the Left and, consequently, voters left in droves. Francis Fukuyama argues cogently in his book Identity that the Left’s focus on identity politics alienates moderates on both sides.
From that perspective, the US election has hopefully placed the world on better political footing.
What worries me is what Trump might mean for the global economy, which brings me back to Ireland.
During my 10-day stay in Dublin, it was clear that Ireland’s decision to attract US tech giants with a low-tax strategy has worked wonders, propelling the Celtic nation to financial prosperity. Headlines are filled with debates on what to do with the recent budget surplus of $14bn and complaints that Dublin bus drivers are arriving too early. First-world problems.
But that strategy is under threat from a Trump presidency built on an economic plan to slash taxes further, lure these firms back to a “Made in America” era and raise tariffs in what he and his advisers see as a way to rebalance a skewed playing field.
The effects will be acutely felt in Dublin, where corporate headquarters of major tech giants such as Apple and Amazon have set up shop. But the plan also risks popping the lid off the inflation bottle, unleashing a genie the world simply cannot afford. After years of cheap money after the global financial crisis and frenzied countercyclical spending during the Covid-19 years, the world is awash in debt and needs rates to come down.
Fiscal policy is causing challenges across Europe. The French and British governments are raising tax rates. A self-imposed debt brake has crippled Germany. Meanwhile, Italy’s reckless borrowing leaves investors uneasy.
Pro-growth fiscal spending as a percentage of US government expenditure has dropped to 45%, the lowest in 40 years — well below the pre-pandemic average of 50%-55%. In other words, 55% of US government spending now goes to relatively unproductive areas, such as net interest payments, social security and healthcare.
While the stock market enjoys a short-term boost from tax cuts and the potential longer-term benefits of deregulation, the bond market tells a far more troubling story. With 10-year yields rising, bondholders are demanding more to cover the increasing risk of holding longer-dated US promissory notes.
Several commentators have been sounding the alarm about the runaway US fiscal debt train for some time. The numbers keep rising and the train hurtles along faster and faster.
Trump’s tax and tariff plans, as risky as they appear, will eventually encounter the bond vigilantes. Hopefully, for Ireland’s sake — and all of ours — he listens.
• Avery, a financial journalist and broadcaster, produces BDTV's Business Watch. Contact him at Badger@businesslive.co.za.
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