For Better or Worse, the U.S. is Getting a New President

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As America is struggling amid a historical protest election, the political risk could undermine US economic rebound and the lingering global economic recovery. Europe will be least immune to spillovers, says Dan Steinbock.

As America is struggling amid a historical protest election, the political risk could undermine US economic rebound and the lingering global economic recovery. Europe will be least immune to spillovers, says Dan Steinbock.

Currently, the leading Democratic presidential candidates, former Secretary of State Hillary Clinton and Vermont Senator Bernie Sanders, are approaching the final showdown. Concurrently, the Republican establishment – including Senate’s majority leader Mitch McConnell and House Speaker Paul Ryan– is struggling to undermine the real estate mogul Donald Trump’s campaign by promoting Senator Ted Cruz, Governor Kasich and less-known ‘dark horses.’

After Wisconsin and New York, the leading contenders seek to consolidate their lead in the remaining delegate-rich states, including Pennsylvania in April and California and New Jersey in May.

Until November, US media will be all about presidential elections, which is financially vital to the ‘bottom line’ of the news organisations and media networks that financially rely increasingly on the expensive political media campaigns. As investigative journalism is largely dead, American democracy is increasingly threatened by big money, which now makes and breaks media buys, candidate campaigns and brokered conventions.

Americans’ trust gap with Washington

In the past few months, Brazil’s political turmoil has filled international headlines. According to Gallup, only 15% of Brazilians approve of the performance of their political leaders. What remains less understood is that about as few or fewer Americans approve of the job of the Congress. In the US, the trust in the national leadership is at record low.

Politically, Americans are fed up. According to polls, two out of every three are dissatisfied with the direction of the country, while most Democrats and Republicans believe that their party no longer cares about the middle class. As a result, most will vote based on domestic issues (economy, jobs, immigration, and health care).

Intriguingly, polls also suggest that, if elections were held today and determined by votes alone, Wall Street’s favorite Democrat, Hillary Clinton would beat Trump, possibly Cruz but would lose to Governor John Kasich. Even more intriguingly, the self-declared democratic socialist Bernie Sanders would beat Trump, Cruz and Kasich each and all.

However, US elections are increasingly about campaign financing and – after recent legislative changes (including the 2010 Citizens United v. FEC) that have made possible the ever-larger presence of big corporate donors – about big, very big money. A couple of years ago, some observers used to criticise the role of political action committees (PACs) in the US elections. Today, that’s so passé.

At the moment, current candidates have raised an estimated $620 million, whereas the so-called super PACs, which first emerged in 2012 campaigns, have already raised more than $410 million – some 40% of the total. Technically, super PACs are independent political committees. Yet, they can support a candidate with unlimited, often anonymous donations from corporations, unions, associations or individuals.

Foreign money is increasingly at play in US elections. When the Panama Papers recently turned a spotlight on global tax evasion, the Swiss bank UBS was estimated to have hidden around $14-$25 billion for wealthy French citizens. After a US fine of $780 million in 2009, a new tax evasion case on UBS was launched by American authorities last year. Yet, UBS Americas, its US subsidiary, has directed more money to Congress through its political committee than the counterparts of other foreign companies, almost $1 million. That’s peanuts for tax evaders, but manna from heaven to political candidates.

Currently, super PACs account for almost half of the campaign financing of Cruz and Kasich, respectively, and more than a third of Clinton’s. By the end of March, the three got $240 million from election committees, but $130 million from largely conservative big donors.

Despite her frequent criticisms of big money, Clinton enjoys floods of funds not just from the elite club of Democratic megadonors, including billionaire financiers George Soros and Haim Saban, but millions of dollars from corporations, unions and dark money nonprofits. Her fund-raising events have also hosted top flip-flop financial regulators who have joined Wall Street (Julie Chon, Gary Gensler, Bob Heckart, Sherrod Brown, Carl Levin and so on). Additionally, she has received almost $5 million from the fossil fuel industry that she likes to condemn for environmental pollution.

Meanwhile, the controversial and ultra-conservative Koch brothers are considering a $900 million investment into presidential and congress races – some of which would go against Trump.

In US presidential election, money makes winners. By late March, Clinton had raised $225 million. To the surprise of her Wall Street donors, Sanders had garnered almost $200 million, even though his funding stems mainly from ordinary Americans. In turn, Trump has raised only $37 million because he knows how to sell media bites without having to buy media time. In addition, when the real game begins, he has millions to burn.

After Wisconsin but before New York, Trump had more than 740 candidates of the 1,237 delegates needed for nomination, against Cruz (545) and Kasich (143). Some 867 delegates are still available. In practice, Trump is unlikely to win nomination in the first round, while both Cruz and Trump hope for a contested convention that would allow them to benefit from the Republican establishment’s “stop the Trump” campaign.

While Cruz sees himself as the ultimate dark horse, he remains a Tea Party favourite and is not the establishment’s unqualified choice, whereas Kasich is more ‘acceptable’, but less popular. As a result, Republicans are heading toward a showdown, which could bump Trump, make a Tea Party favorite its leader, choose Kasich – or somebody else – and risk the splintering of the party itself.

Among the Democrats, Clinton has 1,756 delegates of 2,383 needed for nomination, against Sanders (1,068). In addition to these pledged candidates, she is said to have almost 470 so-called super-delegates who can support any candidate, whereas Sanders has barely 31 of them. Yet, some 1,941 delegates are still available. According to critics, the role of the super-delegates can undermine the democratic process because they are seen to be “for sale”.

However, how would the next president deal with economy and international affairs?

US-EU economic, political and defense cooperation challenged

In the United States, the candidates’ tentative policy positions are often compared in a set of key issues, which typically include China, trade, defense, energy and climate, immigration, Iran, national security, Islamic State, Russia, North Korea, even Cuba; but not necessarily Europe. The most obvious reason is the fact that the interests and values of Europe, along with Japan’s, are usually seen close, if not identical, to those of America. In the past, the perception was valid; today, it is contested.

These frictions go far beyond the current EU-US visa fiasco based on legal deadlines and different views on security requirements and visa-waivers on both sides of the Atlantic.

Since the postwar Marshall Plan and the creation of the North American Treaty Organization (NATO), US-EU relations have been characterised by extraordinarily close economic, political and security cooperation. Moreover, EU-US merchandise trade climbed to more than $700 billion in 2014, double the level of 2000. The transatlantic economy for over half of world GDP in terms of value and 40% in terms of purchasing power. The US and Europe are each other’s primary source and destination for foreign direct investment.

Nevertheless, the eclipse of the Cold War has given rise to a set of bilateral conflicts in trade and investment that go beyond longstanding economic disagreements (e.g., Boeing and Airbus subsidies, genetically modified food, US steel tariffs) and socio-political issues (e.g., death penalty, International Criminal Court, climate change, privacy and cyber security).

This is not to speak of recent periods of outright political clashes (e.g., President George W. Bush, US preemptive national security doctrine, and Iraq War). Typically, President Obama has achieved the Trans-Pacific Trade agreement (TPP) in Asia but the Transatlantic Trade and Investment Partnership (T-TIP) with Europe has proved far more complicated.

Senator Clinton’s assertive defense platform precipitates political time bombs in US-EU relations. In Europe, she is still seen through the nostalgic aura of the Clinton-Gore years when the transatlantic relations were perceived as steady (although even then Bill Clinton used Tony Blair to occasionally play London against Brussels or to benefit from frictions within the EU).

What followed was much worse. Under the George W. Bush administration, America’s imperial dreams alienated much of the world, while Defense Secretary Donald Rumsfeld capitalised on the differences between the ‘Old’ and ‘New’ Europe.

In his past two terms, President Obama has tried to keep the neoconservatives in check by compromising in several areas (e.g., war against terror, containment against China) but holding his own in others (e.g., Iran, defense budget constraints). In contrast, Clinton likes to keep neoconservatives close, including Dick Cheney’s foreign policy adviser Victoria Nuland who has played a central role as the Assistant Secretary of State for European and Eurasian Affairs at the US State Department and as the US point person for the Ukraine crisis.

In February 2014, a leaked phone call between Nuland and US ambassador to Ukraine indicated that she wanted to use the UN as mediator instead of the European Union (EU), adding “F-ck the EU.” She has sought regime changes in Eastern Europe and Ukraine and cooperation with rehabilitated neo-fascist militias.

Nuland’s husband is Robert Kagan, a leading neoconservative and the co-founder with William Kristol of the neoconservative Project for the New American Century. With founding members, such as Dick Cheney, Donald Rumsfeld and Paul Wolfowitz, it served as a think-tank for the advocates of the American Empire. Clinton has flirted with the kind of “dangerous containment” that Kagan outlined in the late 1990s. It is designed not to engage but to confront China – with any means necessary.

In Clinton’s policies toward Europe, strategic aspects overshadow economic exigencies. In Trump’s approach, the reverse prevails. Clinton supports the new “Cold War” against Russia, which has contributed critically to Europe’s economic stagnation. In contrast, Trump believes he can ‘handle’ President Putin.

Indeed, bilateral friction is most evident in his NATO criticism. However, when he recently talked about NATO being “obsolete,” he was simply posed questions that many American leaders ask behind the façade. As Trump added, “Either they pay up, including for past deficiencies, or they have to get out. And if it breaks up NATO, it breaks up NATO.”

As far as Trump is concerned, NATO members have failed to meet the 2% spending target of their GDP on defense. Only five of the 28 members — the US, the UK, Greece, Estonia and Poland — meet the standard.

Trump: America’s defense has a (new) price

In domestic economic policy, Trump’s track record strongly suggests that he would support the kind of Republican policies that are cherished by the “Reagan democrats”: i.e., fiscally conservative economic policies but moderate social reforms. Hence, his strong support among lower white middle- and working class.

In foreign trade, Trump has pledged to tear up or renegotiate the Trans-Pacific Partnership (TPP), which would be an embarrassment to Japan and the ASEAN nations that joined the deal after years of talks. To reduce the US trade deficit with the region, he would raise trade rhetoric against China, Japan and ASEAN’s emerging low-cost producers.

That would include a 45% tariff on Chinese exports and raising import duties on Japanese cars. In currency policy, he would confront Prime Minister Shinzo Abe and the Bank of Japan, which he claims are driving the yen down against the dollar. He would also challenge China’s foreign exchange reforms that currently translate to depreciation. In each case, the net effect would be aggravated currency friction.

In foreign policy, Trump is seen as Bush’s ultra-zero-lite counterpart who needs (but can afford) a regime of handlers. The bad news is that he has already angered most US minorities, two former Mexican presidents, the British Parliament, the world’s Muslims, Israelis and the Palestinians, even the Pope. What’s worse, his recent list of foreign policy advisors suggests that either he plans to move US foreign policy further to the Reaganesque right, or that he will undermine his own agenda in due time.

The best known of his advisors is Walid Phares, a veteran neoconservative whose political career began in the 1980s with close ties with Lebanon’s militant Phalange movement that was in part funded by Israel. With Phares, Trump has called for a ground invasion of Syria and Iraq. Like Clinton, Republican senator Jeff Sessions has supported NATO expansion in Eastern Europe and the catastrophic Bush policies in the Middle East. Keith Kellogg, a former Army lieutenant general, has close ties with Pentagon’s military contractors and served in CACI International when it participated in Abu Ghraib’s torture programs.

Joe Schmitz was in Defense Department during the Bush era but avoided scrutiny by taking an executive position with the infamous Blackwater USA. Finally, Carter Page and George Papadopoulos have deep ties with the investment banking and the new energy-industrial complex.

The key question remains: Will Trump walk the talk? If, for instance, Trump would go after US allies Japan and South Korea, America’s postwar defense system in Asia could crumble.

Moreover, there is another and far more realistic side to Trump’s bullying rhetoric. Some of his murmurings – whether NATO is still relevant; that the Middle East would be more stable if Saddam Hussein and Muammar Gaddafi were still in power.

That he could get along well with Russia’s Vladimir Putin, and so on – suggest that, in the final analysis, Trump would focus his attention on renegotiating better deals and undermining bad ones, not regime change and global empire games.

Clinton: Liberal interventionism

A few months ago, Clinton garnered a roster of some 200 domestic economy advisors. The goal was not to subvert the old policies of income polarisation, which escalated in Bill Clinton’s era and have been sustained through the Obama reign, but to attract middle-class and working Americans, while ensuring campaign finance from Wall Street.

To her surprise, Clinton is now the establishment candidate. Her voters are greying demographics. The young, including young women, are behind Sanders. They no longer trust Clinton. As far as they are concerned, she has betrayed America’s indebted students at home and the US military in Benghazi, Libya. Even State Department has been forced to halt review of her emails at the FBI’s request. Despite his misgivings about Clinton, President Obama and the White House now support her candidacy by attacking Trump and the Republican candidates.

While Sanders argues that a return to inclusive growth would overcome income polarisation and boost US growth, Clinton’s advisors – Paul Krugman, Laura D’Andrea Tyson, Christina Romer, Austan Goolsbee, and Alan Krueger – have sought to discredit the plan by condemning its “extreme claims,” including an effort toward universal health care plan and responsible budget planning. Nevertheless, the effort is not devoid of self-interest. These economists have contributed to policy failures, including escalating health care costs, soaring debt.

Despite the leftist rhetoric (which is designed to defuse Sanders’s transformative agenda), Clinton’s economic policies – including her tax plan and banking policies – require only minor reforms and will not reverse the trend of polarisation, which has deepened in America since the 1980s. She is far too close to Wall Street to challenge the financial interests, which are behind the trend.

In China, Clinton is seen as something of an anathema, due to her role in the US pivot to Asia strategy and efforts to “contain” China’s rise. That policy stance accounts for the ongoing transfer of 60% of the US Navy fleet into Asia by 2020 and the associated military build-up in the region. Internationally, it is aligned with Clinton’s penchant for interventionism, NATO expansion into Russia’s close proximity, more sanctions against Russia and Iran, as well as aggressive efforts at regime changes in Ukraine, the Middle East, Asia, Africa and Latin America.

To benefit from Asia’s growth potential, President Obama negotiated the TPP agreement, which Clinton supported and called a “gold standard” deal as Secretary of State. To deter Sanders, she has condemned the TPP but is likely to ‘adjust’ her views in the end. That’s what Wall Street wants.

While neoconservative positions are not usually associated with Hillary Clinton, her track record of tough foreign policy goes back to her student years (before meeting Bill Clinton and her Democratic transformation). In 1964, she was active in politics but not for Lyndon Johnson and the war against poverty. Instead, she supported Barry Goldwater who was willing to use nuclear weapons against the Soviet Union.

Hot July, tumultuous fall

As state primaries end in May, all eyes will focus on the dominant candidates’ vice-presidential nominees, policy advisors and platforms. Depending on the outcome of the primaries, the Democratic convention in Philadelphia and its Republican counterpart in Cleveland amidst the hottest July will either feature a show of political unity, or a contested convention that has potential to overwhelm the Kardashians’ reality-show ratings.

To win the Democratic nomination, Clinton needs to co-opt Sanders’ progressive constituencies, while courting Trump’s resentful white base and Wall Street’s masters of the universe. That balancing act may please her big donors but not her constituencies. At the same time, Bill Clinton got into trouble with Black Lives Matter activists for his mass incarceration policies that Hillary Clinton has defended. As progressive Democrats, such as Robert Reich and Nina Turner, have joined Sanders who is also supported as Commander-in-Chief by Tulsi Gabbard, a Hawaii congresswoman, Iraq veteran, and rising Democratic star.

Among Republicans, the Bush dynasty operative and veteran adviser Karl Rove has warned that Trump’s nomination would be a “catastrophe,” even as Senate’s Majority leader Mitch McConnell and House Speaker Paul Ryan struggle to undermine Trump’s delegate support. While Ryan has tried to quash speculation about his candidacy, a number of other ‘dark horses’ could surface. Cruz has rejected Trump’s claims that the Republican delegate system is “rigged,” while Kasich has targeted both Cruz and Trump for “path to darkness.”

The Republican establishment loves Trump’s “America First” idea, but would like to bury Trump himself. To them, Cruz is too much about the Tea Party; to Tea Party, Kasich is too much about the establishment. Left unmanaged, these divisions are a recipe to acrimonious internal friction in July and the autumn. The same goes for the Democrat’s centrifugal internal pressures.

If the Republican establishment and the Trump constituencies cannot find adequate consensus and if Sanders’ progressive coalition confronts Clinton, America can prepare for political turmoil as at the turn of the 1970s when violent political protest can no longer be discounted.

The US presidential election occurs amid historical economic stagnation, political polarisation and several military conflicts around the world. Through US global engagements, these polarisations are likely to spill over across the world. Due to decades of deep economic, political and strategic ties, Europe will be least immune to the consequences.

US 2016 Election Is a Global Risk is republished with permission from The Difference Group

About Dan Steinbock PRO INVESTOR

Dr Steinbock is an internationally recognized expert of the multipolar world. He focuses on international business, international relations, investment and risk among all major advanced economies and large emerging economies. In addition to advisory activities (, he is affiliated with India China and America Institute (USA), Shanghai Institutes for International Studies (China) and EU Center (Singapore). For more, please see Research Director of International Business at India China and America Institute (USA) and Visiting Fellow at Shanghai Institutes for International Studies (China) and the EU Center (Singapore).