It is easy to look at the Make America Great Again (MAGA) movement in the US with disdain.  President Trump is trying to create a different world order with a lot of change to historic norms, which is causing angst and stress.  Trump wrote ‘The Art of the Deal’ book in 1987 and it’s clear that he wants everything to be transactional, which is played out through his lieutenants all of which subscribe to this way of governing.  Trump has been in office for a couple of months and whilst there has been a lot of talk, not much has actually happened.  However, things have started to happen elsewhere, specifically in Europe.

The Ukraine war is a good example of MAGA diplomacy.  The war was supposedly being ended within 24 hours of Trump becoming President.  Trump says that the US has spent $300bn on the war, $200bn more than Europe has spent (lent according to Trump).  These figures are nowhere near close reality.  He wants a deal; Ukraine to give up minerals and infrastructure in payment for the support.  He wants the US to stop spending on the war (so he can spend more elsewhere).  He wants Russia back in world trade, presumably for its natural resources.

This has all come as a shock to European leaders who have spent the last 20 years in a slumber.  The potential of a Nato-less Europe has led to a change in mindset.  This change has been led by Europe’s largest economies, Germany, France and the UK.  This change in mindset was hard to see at the start of the year with France and Germany having messy recent elections and Labour’s popularity in the UK waning following an awful first budget.  Germany has tight debt metrics that have been in place for decades, yet despite not forming a government following the February election, the German parliament last week agreed that defence spending above 1% will not be counted in debt calculations.  Also, a €500bn fund, also not included in debt metrics, will be spent on infrastructure over the next ten years.  In total, it is expected that Germany will spend around €1 trillion over the next decade (none of it included in debt metrics – something Rachel Reeves could only dream of).  This would’ve been unthought of prior to Trump’s Presidency.

Things are also changing in the UK.  Labour announcing a cut in the International Aid budget in favour of spending on Defence and cuts to the civil service and benefits are not the sort of policies expected from this government.  Lots still needs to change in the UK to encourage growth.  This week, the Transport secretary approved the Lower Thames Crossing, a new road and tunnel near the Dartford Crossing, expected to cost £10bn (which will no doubt be vastly wrong).  The planning document for the project is 359,070 pages long – that isn’t a typo.  It has taken seven years and cost £1.2bn to get this stage of planning.  I appreciate planning for a new road and tunnel is complex, however a 359,070 page planning document is a waste of time and £1.2bn.  This level of red tape has to be reduced.  Everyone I’m sure can give numerous examples of being frustrated by planning in the UK and it is creating a brake on growth.

The US is the world’s largest market and home to huge levels of consumption.  Trump wants to balance what he sees as the mismatch between US consumption and US made goods.  He wants more made in the US to offset some of the import-export disparity.  Arguably, the biggest US export is its military.  If Trump does reduce military support, he will be reducing American influence.  If America becomes an unreliable partner, partnerships elsewhere will be formed, which you can already see in Europe.  Asia will be similar.  Kier Starmer and President Macron have both been leading Europe’s stance on the Ukraine war.  If the US does make a deal with Russia to relax economic sanctions, it will be interesting to see if Europe follows.

Investment markets are one of the few things that Trump can’t control and they will assert some checks and balances on the President.  The year-to-date has seen outperformance from non-US equity markets for the first time in years and Trump will be keen that his legacy is making Americans richer.  We haven’t made a change to our US exposure because of Trump – American firms will continue to be well managed and innovate irrespective of who is in the White House.  The change we’ve made because of Trump is to increase European equity exposure and we expect the broadening of equity market returns to continue for the next few years, irrespective of Trump policy.