Philip Revzin Considers Trump’s Effects on the Global Economy

Philip Revzin is a long-time journalist and former publisher of the Wall Street Journal Europe and the Asian Wall Street Journal. Revzin is no stranger to the issues of the world economy, having covered everything from US stocks to expanding markets in Asia. Hailing from South Shore, Revzin is not far from home in his current position as a fall fellow at the University of Chicago Institute of Politics. The Gate’s Tim Koenning had an opportunity to talk to him about his forecast for global commerce in the wake of the 2016 presidential election.

The Gate: On election night, a lot of stocks initially fell: NASDAQ, Dow Jones, and others overseas. At the same time, Russian markets saw growth. Will Russian markets continue to see growth, or is this a one-time reaction?

Philip Revzin: What happened Tuesday night, election night, I don't think means anything. There are various financial instruments that get reported that you can see in real time that track what's going up and down. One of them is called “futures.” These are people betting on how the stock market is going to open before it opens. They all panicked! That thing went down 600-700 points, but by the time trading actually started the next day, the market wound up going up 300 points. They basically changed their minds. They didn't lose any money; nobody really invests at that time. It's just a guess. Russia is different, and gold is different. Gold actually went up quite a bit, and that's generally a sign of unease. People flee to gold when they are unhappy, so there was some unhappiness there. I confess: I don't really know what happened in Russia, and I don't think it's a major development. I think it was kind of a blip. The market seems to have settled down. It was up again today. I used to cover stock markets all the time, and you could get whatever you wanted. You could get somebody to say what you wanted to hear. Nobody really knows why the markets behave the way they do. There are so many actors, and it's difficult to say. Millions and millions of actors any day, any time. It’s money, one way or the other, and when you buy a stock, somebody has to sell it. There's somebody betting the other way on each of these transactions. Well, I believe the sentiment in the market. The belief was that it's probably not going to be that bad, and the economy is doing pretty well, and the Fed is still there as a brake, and the bond market is still there as an enforcer of, “You can't spend all this money you said you were going to spend, Mr. Trump, and cut taxes as well, without somehow raising some money, so we're not going to let you do that,” right? There's going to be a sanction if you do it, the bond market is going to go crazy, and interest rates are going to go up. You don't want that. I think that basically, at least for now, investors don't believe he's going to go start a war, and they don't believe he's going to build a wall, and they don't believe he's going to expel eleven million people overnight. So they're willing to say, “Let's wait and see what happens.” That, I think explains the jitters, and then the settling down.

As for foreign markets? Those guys were a little bit more uneasy. Those markets have gone down a little bit. They don't know what to make of Trump. They don't really know what his other foreign or international economic policy is beyond that he doesn't like trade deals, apparently. There’s not really a pending trade deal with Europe, although there could be. There's the Asian Trans Pacific Partnership deal, and there's NAFTA, right? If he just throws that all away—which I doubt he'll do, but he said he'll do—that's going to cost a lot. The Mexican peso fell out of bed. The Mexican peso went way down.

Gate: Yes, the peso went down 11 percent and bounced back to being down 9 percent.

Revzin: Right, but it's still down. Really the only country Trump has named that he's going to take aggressive action against is Mexico, right? Sending the people back and tearing up NAFTA? We're a little worried about that.

Gate: If Trump were in office today and succeeded in passing some of his proposed legislation, what does that mean for the Mexican economy?

Revzin: The Mexican economy needs NAFTA. They need their people being able to go across the border and come back legally. Not harassed, not a wall, not having to show papers or get pulled out of line and questioned. They don't want any of that, and that would directly hurt their economy. Anything that abrogates NAFTA, or somehow tears it up, would hurt their economy. The same I think is true of China, if you get very aggressive about China and you put on a 35 percent tariff. And maybe he would do the same with Mexico, and he was thinking of saying to the Carrier air conditioning company, “If you move your plant to Mexico, I'll punish you. Ford, if you make your cars in Mexico, I'll punish you.” That's all terrible for the Mexican economy if he does any of that. He already hasn't, and it's unclear whether he can do it without acts of Congress. It's unclear whether even a Republican Congress would go through with it. The bigger danger to the economy—which fewer people talk about because it's a little more complicated—is that there are economists out there worrying about the fact that if he actually keeps these promises, and spends a zillion dollars on infrastructure, and spends a zillion dollars on veterans—“Veterans need more money, they need more hospitals”—then he cuts taxes for everybody at ten trillion dollars or whatever that bill is. Then he's going to build roads, and he's going to do this, and he's going to do that, and then the economy explodes. Then you've got a deficit and a debt like we've never had before. The bond market goes crazy. They're not going to accommodate that, even for him! Interest rates will go back through the roof and we'll be in a 20 percent interest rate situation like we were in the late 1970s, and that was terrible. That's what the initial jitters were, you know, “Could this happen?” Then I think it settled down to, “Probably not.”

Gate: Trump has mentioned changing NAFTA, and you don't seem to think that would be beneficial to us in the United States?

Revzin: I don't think it would be beneficial to anybody. I don't think that it would even happen. It's an easy political thing to be against it, right? It's this great sucking sound—“Mexico has stolen all our jobs!” and, “Ah, the Canadians”—but you know, Mexico in particular. If you actually look at the facts, the job loss hasn't happened. There's been equity on both sides. There's been job growth on both sides. It's been good for everybody. I think what a lot of the market people are praying for is that this was political rhetoric. This got him elected, and that somehow he doesn't have to do it, or he can't do it. There will be a way, or somebody will block him, and he'll say, “Oh my God, I tried! Those Republicans in the House, the Democrats, or the liberal media, prevented me from doing this.” And that's fine, and he’ll back away. The other thing I hope is that—I'm an optimist, I was a Cubs fan for fifty-five years—after a few months of anodyne talk and economic proposals that don't really go anywhere, the economy keeps growing the way it's been growing and he takes credit for it. He'll say, “Everything's fine! Now it's great, and I'm in here. The markets anticipated my election so they did the right things, and everything's terrific!” and then he doesn't mess it up. He can just take credit for all that, and maybe that's wildly optimistic, and he is going to mess it up. I hope not.

Gate: According to exit polls, two-thirds of voters believe that the US economy is poor or not doing well. Of those, two-thirds voted for Trump, likely for his business experience. Is that kind of background in business actually a good indicator of strong economic policy?

Revzin: Probably not, or it could be or it couldn't be. There's certainly a yearning for some kind of financial wizard who will solve the problems. In my opinion, and I think in the opinion of most economists, even some here, the economy is healing. The economy is getting better after the worst recession since the Great Depression. It's taken a while, it's growing. You know there are jobs out there. The unemployment rate is way down, and wages are starting to go up. That's the last thing that happens, and that's the last thing that is happening, that people's wages rise. They've gone up, fairly substantially, and there's no reason to think they won't. Do you need now to start over, to trash all that, to cut everybody's taxes by an unsustainable amount, and take away regulations that actually save people’s lives? I don't know. I think he's going to do some of that. I think a lot of it, in my optimistic opinion, is cosmetic. If you take away a few regulations, it doesn't really matter, but everybody feels much better. There's plenty of money to borrow. Investors have all been saying they're waiting for the right climate, and now that they have a Republican president and all that, maybe it's the right climate—which it was a month ago—but now it's the same climate and they feel better about it. A lot of it is mental, a feeling, an atmosphere of what the other people are doing. We'll see what happens. You could ignite a boom fairly easily. As long as the Fed is on the watch, and Trump hasn't gutted them, or somehow screwed that up, they're going to watch to make sure it doesn't overheat and then we could be in for pretty good times. Let's hope.

Gate: As you mentioned China, Trump has discussed imposing a tariff on Chinese imports. China is the US’s largest importer. So what would that kind of tariff mean to American consumers?

Revzin: What it would mean is that all that crap in Walmart is suddenly 35 percent more expensive. They make kitchen liners and plastic drainers. They're not going to start up a factory in Ohio to make plastic drainers again, so all the stuff that people like to buy at Walmart because it's cheapest is all of a sudden going to be more expensive. At the risk of stereotyping, those are Trump’s guys. Those are his voters, and they're not going to like that. So, I don't think he's going to do that, and plus that's not without consequences. You start slapping tariffs on countries, they slap them right back! And all of a sudden Trump’s great American manufacturers aren't going to be able to sell anything in China because it's too expensive. Now, he does have this notion that the Chinese are currency manipulators. The problem is that they have manipulated it the wrong way recently. They've actually been strengthening it, rather than weakening it.

Gate: Say Trump effects a large tariff. In that case, does the US keep importing things from China, does China turn to other countries, or something else entirely?

Revzin: If China turns to other countries, that's even worse. Then we lose those markets. It's not really a good solution to make them unhappy, because we depend on them for stuff. They do buy a lot of our government bonds—they finance our deficit. That's not a problem. Everybody wants those bonds, so that will be financeable if they slack off a little bit. The trade benefits us mutually, and if you screw that up, it's not going to do what you want. He's not going to say, “OK, all of a sudden they're trading fairly and they're not undercutting us.” Because part of the reason he thinks it's unfair is that their prices are too low. Well, we like that. [Laughs.]

This interview has been edited for content and clarity.