Trump wins a second term

If Trump wins a second term, there would be a revolution in the US two-party system as its right wing turns into a European-style blood-and-soil party, plus the possible fracturing of the GOP as ‘never-Trumpers’ flirt with a third party, which will fail. The big medium-term question in the US under Trump is the fate of the GOP. Will it become a Bannonite, National Front-style party, or revert to Reaganite form after Trump? Trump himself is too old, too erratic, and too narcissistic to complete the former. But he has shown that GOP voters are far more sympathetic to crypto-racist, crypto-authoritarian appeals than anyone previously thought. So now the question is, will there be a Trumpist Republican who is far more lucid and coherent than Trump himself to properly finish his remaking of the GOP into a soft version of the National Front? And, if so, will that party morph into a vague threat to US democracy as the National Front is in France? In short, the Trumpers will likely win the GOP Trumper-Reaganite civil war, but they need a political class more focused than Trump himself.

Trump is broadly incompetent and most of his economic ideas – tariffs, inequality-worsening tax cuts for the wealthy, ballooning deficits – will generate medium-term drag. But that won’t be felt until his successor, who will be under enormous pressure to raise taxes to reduce the deficit, as happened in the 1990s.

If the economy stabilises sufficiently to boost Trump’s popularity and win him a second term, conditions would likely have to be significantly more positive than just a ‘neutral’ or moderate course. Growth that robust would suggest a course of further strengthening.

There would be a mild rise. By 2020, Trump will be a known quantity to the market, and his affinity for the stock market is now well known. Because he uses that as a critical benchmark of his presidency’s success, he will do a lot to keep it moving upward.

A presidential candidate cannot run a campaign of ‘massive change’ twice in a row. So a second term for Trump (again, with a theoretical qualification of a strong economic backdrop) would likely be registered as a status quo which would support equities, and other risk assets, if they were already on the rise. As for the dollar, the unlikely event of Trump’s re-election would also happen in a stable economy that would favour conditions such as the Federal Reserve steadily raising interest rates, and local assets competing or outperforming their global counterparts. Putting aside the political taste or distaste of the event, the circumstances under which this would happen are likely to support the dollar.

There would be a significant worsening of race relations – a Trumpified, National Front-style GOP will increasingly be the party of whites and the Democrats of everyone else. This division will be felt throughout US culture – TV, movies, holidays.

If Trump were to win a second term, the social impact would likely re-entrench the division between those who hate him and those who love him. But it may not actually change the ratio between those two sides. If he was able to win the election, his popularity scores would theoretically have had to improve significantly.

Basically, Trump is this cry of anger from middle America, and middle Europe and middle Britain, against the world order that was set up at the end of the Second World War. This was basically free trade run by the UN and Washington DC, and he’s saying that deal isn’t working out for us any more, so we’ll go for something else. You’re moving to a world that’s more like the Victorian period, where you’ve got great powers, either fighting occasionally and having proxy wars, or duking it out.