Bill Jamieson: Trump deserves wary reception on red carpet

A piper greets Donald Trump on the tarmac on a previous visit to Scotland. Picture: Donald MacLeod

But where is First Minister Nicola Sturgeon? How would she greet the US president after denouncing him for his “abhorrent” remarks – the misogyny, the xenophobia, the bigotry and racism? Would the First Minister’s hand be extended? Or a rolling pin brandished?

What possible common ground could there be between the two? None whatever, it would seem. Except, perhaps, for these.

Take corporation tax. Trump has pledged to cut the US corporate tax rate of 35 per cent. But was not the SNP loudly in favour of a cut to exactly the same tax to help attract investment and jobs to Scotland?

Trump wants to see a massive boost to infrastructure spending. But that’s exactly the uplift to road and rail improvement that the SNP has long championed.

And the president-elect wants to lift the take-home pay of millions of low-paid workers. But has this not also been the keen desire of the SNP’s budget planning?

There is a problem with this list of selected commonalities. With Donald Trump they come with other commitments with which Sturgeon and the Scottish government profoundly disagree.

And then there is the biggest problem: no-one is at all sure which policies Trump will actually take forward. The immediate and formidable task in Washington is sorting out the morass of contradictions and improbables that the Trump campaign has left in its wake. For all the talk of a new order, the overthrow of the policies that have prevailed for 30 years – rhetoric that an apprehensive commentariat has echoed over the past few days with an increasing degree of foreboding – it is not at all clear that “Team Trump” has anything like a detailed strategy worked out – or the team to enforce it.

The initial reaction in markets was one of grim foreboding: an unlikely Trump victory, like that highly unlikely Brexit vote here back in June – and with all the attendant uncertainty – was widely thought to deal a blow to investment and threaten economic growth. Indeed, so certain was the financial commentariat on Wall Street that markets were braced, not only for a sharp fall were Trump to win but also for the further postponement of a rise in interest rates next month as had been signalled by Janet Yellen, chair of the Federal Reserve.

But within hours, there was a double-take. Investors looked at the Trump pledges of a massive public spending boost and tax cuts for both the business and household sectors. This, surely, was a winning combination for the equity market. And it would also mean that interest rates would, after all, be raised in December: any economic pain resulting from rate increases would surely be more than offset by the great Trump fiscal splurge. Central bank largesse would no longer be required – particularly as the latest monthly employment report showed that the trend in US average earnings growth was firmly upwards.

But look again. Have we not been lured into Alice in Wonderland economics – six impossible things before breakfast? We are being asked to believe in big business tax cuts, coincident with big household tax cuts, coincident with a freeing up of business regulation and a massive boost to government spending – and all this coincident with US federal government debt at $19 trillion (£15.3 trillion), three times the level in 2000. Is this Himalayan peak of US government debt about to magically melt by the time of Trump’s inauguration?

During the fiery election campaign, Trump promised tax cuts that – on his own figures – would amount to $4.4 trillion (£3.5 trillion) over ten years. Some estimates of the cost ranged to double that amount.

Now add to this the bill for his spending plans. He has said he hopes to spend $500 billion on infrastructure projects.

The upshot, says ADM Investor Services economist Stephen Lewis, is likely to be a substantial expansion in federal debt to well over 100 per cent of GDP – a level that would leave debt-soaked Greece looking prudent by comparison. “In conditions where inflationary pressures are, if anything, strengthening,” writes Lewis, “this does not present a favourable prospect to bond investors.”

If the possibility of capital flight is not constraint enough, Trump will also have Congress with which to contend. His proposals will require congressional approval. Many Republican members have not seen Trump as a true Republican – and many have spent the past eight years opposing measures that would add to the federal debt.

Another point of friction is likely to be his proposals to radically amend, if not scrap altogether, free trade deals and to slap tariffs on goods from China. That has awakened disturbing memories of President Herbert Hoover’s imposition in 1930 of more than 20,000 tariffs, an action widely blamed for turning a sharp US recession into a global depression that came to define an era. Trade fell by more than half as other countries retaliated with their own tariffs on American goods. Millions of jobs were destroyed.

Congress has looked favourably on global free trade agreements to which Trump is opposed. Should his rhetoric be translated into actual policy, the region worst affected could well be Europe. “Action that undermines freedom of global freedom of trade”, says Lewis, “is likely to weaken EU cohesion if it encourages national calls for counter-measures. Also, Mr Trump’s determination that European countries should shoulder more of the costs of their defence could absorb whatever leeway for higher spending those countries may find in their budgets. There will be correspondingly less scope for spending on infrastructure with a view to boosting productivity. In Europe at least, the depression seems set to continue.”

The First Minister’s predecessor, Alex Salmond, counsels circumspection until we know more of what a Trump presidency will entail. But for these reasons at least, Nicola Sturgeon will feel a warm welcome for President Trump at Prestwick Airport altogether too difficult for words.