Washington DC: Putting out fires with gasoline
Matthew Shapiro, Managing Director for the Americas, gives us a Bowie-inspired view of Washington DC as it is in June 2018
I don’t know where I am going, but I promise it won’t be boring - David Bowie
Having spent last week making the rounds in the US capital, the words of a man who knew a thing or two about changes seem strikingly appropriate for the current state of play in Washington DC. As traditional distinctions between friend and foe get redefined in the US, my series of meetings with US allies, government officials, and private sector leaders produced a single overwhelming message: US policy under the Trump administration has become completely unmoored from certainty and predictability. Conventional wisdom is no longer a useful guidepost, as policy aims are a moving target rather than a deliberate path to a destination, making it extremely difficult for other actors – public and private alike - to follow along. Throw in the coarse, abrasive and personalized style of political self-promotion favored by President Trump, and you realize anyone offering a clear, irrefutable “roadmap” to the future is selling snake oil.
So with an assist from David Bowie let's unpack the current environment in an effort to provide a little clarity as we move forward…
“Station to Station”
President Trump is a purely transactional policy maker and this makes him entirely tactical. Each major issue, decision and course of action seems to be handled independently. This is a legacy of his formative years as a real estate developer in New York, where individual transactions are siloed and only tactics matter because the aim of each project is the same. This helps to explain the Administration’s approach to everything from trade to denuclearization and provides one of the few reliable frameworks for anticipating how things may play out.
China, a popular topic in Washington, is a perfect example. How can you push Beijing to engage on North Korea, threaten China with a trade war and claim to be great friends with President Xi all at the same time? Because these are not individual pieces of a broad and coherent China strategy; they are completely separate deals, to be viewed individually on their own merits. President Trump has been remarkably consistent in the application of his preferred deal-making style and will likely take the same approach moving forward.
While many policy professionals may be quietly hoping that the President is secretly playing some form of three-dimensional chess, it seems clear that he is instead focused on knocking individual pieces off the board as and when they attract his attention. He may be sitting at the table and playing the game, but he is not interested in the rules or traditional gameplay. This is unlikely to change.
Flattery and criticism produce the same results with this Administration, so how does one effectively engage with President Trump? Settling on an answer becomes more crucial as US allies find themselves dealing with an increasingly freewheeling President who is growing ever more comfortable with his role. The picture from the G7 summit in Quebec with the president seated, arms folded in a stare-down with Angela Merkel sums things up. “Bring it on” is the new normal.
500 days into the Administration, America First policy making has been much less about entrenching US leadership in a post-globalization international community, and much more about freeing the US from the constraints of traditional commitments and pursuing what the White House sees as being in the country’s best interests. Countries who find themselves in the path of America First progress are clearly shifting from contemplating concessions to making a stand, and there is growing evidence to suggest that other nations are considering a more aggressive approach to engaging with the United States.
Canada, the EU and Mexico have all opted for a show of strength and an eye-for-eye response on tariffs, but will this do more to provoke Trump than to bring him back to the dance floor? Trump seems to adjust his own actions based on perceived strength (certainly explains the meetings in Quebec and Singapore). With a wider international audience watching closely, whoever blinks first in the current trade dispute will be a huge signal for the months ahead.
Current US policy priorities are not driven by traditional Republican values, despite the GOP controlling Congress and the presidency. Instead, policy is effectively driven by Trump’s core base – that group of largely older, largely white, largely (though by no means exclusively) male voters who provide the very solid floor for Trump’s approval ratings. While you might argue that people have always driven the priorities, in recent years Congress and the Parties (Republican and Democrat) have been happy to serve as a filter between people, President and policy.
Policy is effectively driven by Trump’s core base
No longer. Today, if a soundbite resonates out in the heartland of Trump’s red America, then it becomes policy. “China is stealing your jobs”, sells. “Trade deals are unfair to American workers”, sells. “The Iran deal was the worst deal in history”, sells. “Entitlement reform is critical to fiscal responsibility”, does not. The president is a hero to this group, and they in turn become heroes to be nurtured and protected by this Administration. In this love-fest, policy is largely driven by the expediency of affirmation, and longer-term consequences have little place.
The mid-term elections in November will be an interesting opportunity to find out what that base really looks like, and will shape the final two years of President Trump’s first term in office.
Despite all the angst among allies and the doubts of party loyalists, surely at least business must be happy with its new CEO-in-Chief. Remember the condemnation of rich corporations and the 1%? Remember Occupy Wall Street and the new Consumer Financial Protection Bureau? The Volcker Rule? The Paris Climate Accord and the push for clean energy standards? How about Net Neutrality? Led by tentpole Tax Reform legislation, US corporations have quietly enjoyed a meaningful acceleration of deregulation and oversight that has meant an immediate windfall for many companies.
Yet this new romance comes with some baggage, as the president is balancing these changes with a willingness to denounce individual companies and/or CEOs on social media and play to his base. These informal riffs carry the authority of the White House and can have immediate consequences for stock prices and operational decisions. The administration has also quietly signaled a greater willingness to cite national security concerns as a reason to review corporate mergers and acquisitions.
Things certainly seem more positive than not on balance, but if the government is trying to attract new investment in the US, the private sector is dealing with a lot of mixed signals.
Washington feels like a totally different planet these days. On the same afternoon I was reliably informed that “the barbarians are at the gate” of Washington policy making, and from a separate, but equally reliable, source that the “lunatics are already running the asylum”. Neither of these assertions are particularly helpful, but what is clear is that the old rules for dealing with and understanding Washington have been dramatically altered, and likely with lasting effect. The golden years of predictable and reliable-enough American direction are gone. The US is now focused almost exclusively on today while the rest of the world, in both the public and private sector, are trying to parse the implications for tomorrow and beyond.
When the largest player in the game stops playing by the accepted rules, it will take time for everyone else – governments, corporations and citizens - to adjust. That gap is significant and presents both unexplored opportunity and unquestionable risks. In a world where near-term decisions drive long-term outcomes the US’s almost exclusive focus on the short end of the curve is going to create unforeseen dynamics over the horizon.
Get used to “Life on Mars”.
Matthew Shapiro Managing Director (Americas)
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