By Thomas Mayer

Donald Trump bears a certain resemblance to the Roman god Janus. In Roman mythology, Janus symbolises the duality inherent in the world and people: Creation and destruction, life and death, light and darkness, beginning and end, etc.

In short, everything has a good side and a bad side.

The good and the bad

In his first term in office, Donald Trump cut taxes, identified China as an adversary and forced Europe to work harder in its own defence. In retrospect, some of his policies even appear to have been sagacious.

But Trump is also a convicted felon, and he has been a notorious liar and a threat to the rule of law. In the framework of politics, it remains to be seen with which of these two faces he will go down in history.

A positive economic force?

In the area of economic policy, however, the positive impulse provided by Trump to strengthen the entrepreneurial spirit is likely to prevail.

That seems a surprising conclusion given that Trump’s trademark economic policy move is to opt for increasing trade tariffs.

However, it stands to reason that, under the influence of his techno-libertarian supporters, the threat of tariffs could be used as a tool to pursue desirable foreign policy goals. After all, if the threat is successful, the tariffs could be reduced or even cancelled.

Moreover, even his enemies would concede that Trump has a certain business acumen and likes to please financial markets.

Or a degeneration into “crony capitalism”?

The reduction of regulations and the tax cuts promised by Trump could potentially have positive effects.

However, the tax cuts are very likely to lead to a further increase in US national debt and Trump’s proximity to billionaires from the technology industry could lead to the degeneration of capitalism into “crony capitalism.”

Or a second “Gilded Age”?

At the same time, a significant pairing of the U.S. welfare state by the “Department of Government Efficiency” led by Elon Musk could slow down the rise in national debt.

Paired with a technology-induced increase in U.S. productivity, especially in the field of AI, this could lead to a second “Gilded Age.” It was Mark Twain who used this term to describe the economic heyday in the United States at the end of the 19th century.

Back then, the US economy was transformed from a rather agrarian and rural structure into a modern industrial society by virtue of industrialization and the rapid growth of cities.

Bad news for Europe

The EU itself and its member countries are hardly equipped for the disruption Trump will cause.

European countries lag behind in digitalization and the development of artificial intelligence. Moreover, they have neglected their military defence and are an easy prey for an aggressive Putin-Russia without US protection.

What about the view of the financial markets?

The financial markets seem to rate the opportunity higher than the risk associated with Trump’s second presidency.

The fact that betting against American exceptionalism has only brought losses to financial market participants in the past – and therefore appears to be very risky now – may also play a role here.

Consider as well that, even if Trump will not bring the blessing that some hope for, the notion of American exceptionalism could also be reinforced by the mere fact that the rest of the world is far worse off than the United States.

Wisdom of the crowd – or march of the lemmings?

Precisely because it is so convincing, the financial market players’ bet on American exceptionalism is a “crowded trade.” It, therefore, remains to be seen whether betting on it reflects the “wisdom of the crowd” or the “march of the lemmings.”

While one cannot ignore the probability that the bet reflects “wisdom of the crowd,” one must ensure that all is not lost if the lemmings fall into the abyss.

The United States is not Japan

Despite these risk factors, on balance it would be wrong to conclude that US exceptionalism would have come to an end even if markets turned sour. Conditions like those after the bursting of the Japanese bubble economy in the early 1990s are unlikely to prevail in the United States.

More likely, American exceptionalism will continue, and financial markets would recover.

Thomas Mayer is the founding director of the Flossbach von Storch Research Institute in Cologne, Germany.

* This article initially appeared on The Globalist. Follow The Globalist on Twitter: @theglobalist

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