It's not an overstatement for me to say that as far as Donald Trump’s policies are concerned, we witnessed a breathtaking “flip-flop” performance this week.
This is worrisome for investors because it casts doubt on the actual process about just how Trump and team crafts overall policy.
To me, Trump's decision-making process seems to be almost random.
In the past few days, we got a Trump flip-flop on China’s currency situation and a reversal on his take that a strong dollar is "good" vs. a strong dollar is "bad."
We also got a flip-flop on healthcare, which got buried in the mainstream news by everything else. But now, apparently, healthcare reform seems to have taken priority over tax cuts.
I think one of the big questions for financial markets and for long-term investors is: How do you handle these uncertainties about policy decisions?
We know that U.S. economic fundamentals are moving along at a steady pace. But how do you cope and prepare as an investor amid this uncertainty?
What happens if and when the next policy shock occurs?
From what we have seen from Trump during the last few weeks, he has clearly taken a big step back from his campaign rhetoric on protectionism and bringing back jobs to America.
We see that the president seems to have finally understood, at least for now, the reality of the way in which global policymaking actually works.
The best example of this is Trump dealing with the Chinese in a real and very serious technocratic manner about such delicate allegations as currency manipulation.
What we have learned from Trump isn't that he has become more conciliatory, but that he changes his mind a lot — and in both directions.
We have had something like four different healthcare policies. Such an example of indecisiveness is troubling because this "flip-flop" risk will always linger.
Will Trump do what he said he will do without changing his mind — and then later changing it back again?
Investors' primary fear is that if the Trump administration doesn't get its way with Congress on various aspects of policy (like healthcare, fiscal concerns, building that wall, etc.), then the real risk could become that Team Trump will focus all firepower on the one area that it can control.
That one area is: trade,
Healthcare returning as the top priority in Congress is a problem because there will be no time left to focus on fiscal policy. Let’s also not forget the generic excuse by Team trump that a previous vow was "just campaign rhetoric,”
I remind investors that campaign rhetoric will start again in December. We will have midterm elections next year and we know what American politicians are like.
The campaign rhetoric is going to be ramped up again. If Trump’s approval ratings are low and if he is seen as a liability, he might appeal to his support base. Trump's most effective method of appealing to his red-cap "Make America Great Again" crowd is through trade protectionism.
When you look at the president’s view on protectionism you’re looking at selective protectionism, which doesn’t include an outright trade war. In Trump's case, however, it’s legitimate to conclude he only wants something he can tweet about.
Trump wants an "accomplishment" with which he can go to his fan base and in 140 characters proclaim: “Look at what I did!”
It doesn’t matter from a political perspective on how effective his "accomplishment" actually will be.
(By the way, most trade protectionism isn't effective and does more harm than good.)
Now, a lot of people rightly say the president is a business man.
Unfortunately, at least in my opinion, this is a worrisome aspect about Trump.
Businessmen are protectionists because they focus only on their industry. They examine it at a micro-level and they usually don't look at the big picture.
Protectionism can be superb for an individual industry while being a complete disaster for the economy.
Long-term investors are at risk that we could get — which doesn’t mean it is written in stone — a businessman’s approach to protectionism from Trump.
With all the other economic and political uncertainties around the globe, this isn't the right time for investors to take risks.
Etienne "Hans" Parisis is a bank economist who has advised global billionaires and governments on the financial markets and international investments.