This is May's chance to start building her global Britain
This article appeared in The Sunday Times on 22nd January, 2017. The views expressed here are the personal views of Gerard Lyons and do not necessarily reflect the views of Netwealth Investments.
Are there positives for us from President Trump's economic policies? When Theresa May meets the President this week the focus should be on ensuring a positive, forward looking start to our relationship.
Over the last eight years it has been a frosty relationship, not a special one. Examples include military mistakes in the Middle East, or UK banks subject to heavy fines. This can now change.
We can normalise our relationship as the closest of allies and economic partners. The immediate focus - and quick win - can be common agreement on defence and anti-terrorism. In economic terms, we need to lay down the groundwork for a future bilateral trade deal once we leave the EU. We can't sign a new trade deal while still an EU member but we can start the work now.
The US is our biggest export market. To maximise future ties we need to focus on our areas of strength and to understand what is driving the President's economic agenda. For a start, he was right to single out the elite during his inauguration speech. He was talking about Washington, but it has global significance. More people deserve to share in success.
What the world economy needs is stronger growth. The rhetoric around "America First" does not play well across the globe. But if the world's biggest economy grows strongly we all benefit, even if America sees more of it.
Since his victory in November, the dollar is firmer, inflationary expectations higher, longer term interest rates are off their lows and equities are stronger.
Financial markets are giving Trump the thumbs-up. His policy is seen as a combination of two previously successful Presidents. One is Roosevelt's 1930s focus on boosting the infrastructure.
The second is a 1980s Reagan-style approach to business, with small government, less regulation and tax cuts.
Trump is expected to create an enabling environment for business, cutting taxes, triggering more investment at home. The Republican Party's majority in the Senate and House should allow him to push through super bills for his domestic agenda.
There are caveats. Trump is new to office and we can't predict how he will behave. Also this is a different economic climate to the 1980s. Debt levels are high and monetary policy loose. Some suggest Congress could try and put a break on some of his fiscal measures, although I doubt it.
Interestingly, it is not just Trump who is set to use Government spending and tax cuts to boost demand. Following last June's UK referendum result, there was a notable change with fiscal policy being relaxed across the globe. If the US does more, so too might others. Alongside cheap money, the result has been global reflation and stronger growth.
Each year since the financial crisis, global economic forecasts have been revised down as the year has progressed. Now, for the first time in eight years, world growth may surprise on the upside.
But it needs big companies, whose balance sheets are healthy, to show more confidence and invest. This is as true in the US as in the UK. Trump will try and encourage this, as will Theresa May.
Protectionism is the big worry. Ahead of his inauguration, financial markets had not factored in possible negative effects linked to trade tensions or his handling of geopolitical risks. The question is whether putting America first will be at the expense of the global economy. But this fear should be less of a concern for us and more of an issue for countries relying on cheap labour.
Since the financial crisis, low rates and cheap money have fed the super-rich: the ‘have yachts’ have prospered as opposed to the ‘have lots’. The focus for most people though - in the US and UK - has been on 'just about managing' (the JAMs). Wages have been squeezed. The demise of unions may have been the initial trigger decades ago, but since then it has been a combination of technical change, financialisation and globalisation.
Trump is viewed as anti-globalisation. It is far more subtle than that. He is wary of supra-national bodies. He thinks other countries may need to share more of the burden that the US used to shoulder, for instance on defence.
Globalisation has gone through many waves. Trump is not against firms and people trading, nor against countries doing trade deals in their own best interests. This reinforces the need for the UK to have an eventual bilateral trade deal.
Theresa May has spoken about a Global Britain, based on free trade. Trump's message does not come over as a free trade one, but by trying to cut out jobs going to low cost locations let's hope there is a fair trade element to it that can be built upon. Over the next two years we need to build upon common goals. For instance, as the biggest service sector economies in the world, both of us have much to gain by reducing non-tariff barriers that limit service sector trade across the globe.
Trump has started to change the landscape. The Prime Minister has a great opportunity to build on that this week, strengthening our bilateral ties and being seen as a trusted ally as the President's view of the global economy evolves. Let's hope it is for the best.