On the day after what has arguably been one of the more troubling outcomes in American presidential history, the world’s financial markets gyrated upwards. But no-one should be under any illusion that a transition from a Democrat administration to one led by an unknown quantity will represent business as usual.
The Trump ascendancy, accompanied by Republican victories in Congress and in gubernatorial contests, represents one of the most striking power shifts in American history.
Markets may have temporarily absorbed an unheralded election result, partly out of relief that America’s jarring exercise in democracy has been executed in a relatively peaceable manner. On the other hand, a Donald Trump presidency promises an extended period of uncertainty as the world absorbs its consequences.
Markets will remain volatile with real prospects of a correction, or at the very least a dip, as uncertainty about America’s direction persists well into the new year - bearing in mind Trump will not be sworn in until January.
We might note that among American equities turbo-charged by Trump’s victory have been those in the defence sector. This is a sign that investors anticipate a more muscular American policy in which military power will be more readily deployed, along with increases in spending.
Trump has pledged to lower taxes, reduce regulation and initiate massive investment that would tackle America’s crumbling infrastructure. But all this will take time and money, at a moment when the country’s budgetary means are stretched.
His undertaking to build a wall along the Mexican borderwould cost something like US$20 billion – if such a scheme ever materialises.
It will take months for the consequences of a Trump victory to play itself out in how America relates to the rest of the world on issues such as trade, climate change, relations with Russia, and the Middle East.
Nothing can – or should – be taken for granted.
Markets will need to live with this uncertainty for the foreseeable future as a Trump presidency defines itself in ways that are difficult to predict. Who, for example, will serve in a Trump cabinet?
Will he appoint cabinet members from inside or outside the Washington establishment? What role will political warriors and Trump surrogates, former House Speaker Newt Gingrich and former New York mayor Rudy Giuliani play?
Appointments of these sorts of individuals will provide an indication of the tone of a Trump administration, conciliatory or confrontational?
Trump’s own predisposition is towards the latter.
It is not clear if the president-elect himself knows where he might take his country, beyond his own campaigning bombast that singled out some of America’s principal trading partners as culprits in the loss of American jobs and an unfair trading system.
His threats to tear up a nuclear deal with Iran are particularly troubling in the absence of a realistic alternative beyond the re-imposition of sanctions. This would add further to tensions in the world’s most volatile region.
Trump’s pledge to brand China a currency manipulator and slap punitive tariffs on imports from that country risks a trade war. More likely is that a Trump administration will temper its rhetoric and find ways to accommodate itself to realities.
But we cannot be sure and therein lies the challenge for Australian policymakers.
Prime Minister Malcolm Turnbull has calibrated his remarks over some weeks about the possibility – however remote such an outcome may have seemed – of a Trump presidency.
Now the reality has hit home, Australian policymakers need to be wary of American policy impulses under a new and unpredictable regime, whose first impulses are towards a version of isolationism underpinned by antagonism towards globalisation.
While there is no apparent risk to the American alliance itself – cornerstone of Australian security – a new administration will take actions that will require Canberra’s careful response.
Trump has made no secret of his belief that America’s allies should make a bigger contribution to collective security. He has even suggested that Japan and Korea develop their own nuclear capabilities.
The latter might be regarded as a thought bubble, but what all this indicates is that the world is in for a period of great uncertainty, even disruption.
Leaving aside risks inherent in Trump’s threats to impose tariffs on China, his antagonism toward trade agreements, including the North American Free Trade Agreement (NAFTA), should be concerning Australian policymakers.
He has even spoken about pulling the US out of the World Trade Organisation.
Trump has railed against the Trans Pacific Partnershipaimed at building a liberalised trading bloc in the Asia Pacific and policy objective of successive Australian governments.
Will TPP, now stalled by politics, be removed altogether from the American agenda?
This would represent a setback for a liberalising trading environment on which Australian prosperity rests.
What about climate change?
Trump has dubbed efforts to reduce the effects of global warming as a “Chinese hoax’’. At the least, he is likely to pull back from the sort of engagement displayed by the outgoing US administration efforts, sponsored by the United Nations, to mitigate the effects of climate change.
The president-elect has exhibited little knowledge of, or intuition for, these complex issues. Trump will find himself on a very steep learning curve.
From Australia’s perspective, the China issue looms largest. Any serious disruption in relations between Washington and Beijing would be extremely deleterious from the Australian perspective, dependent, as we are, on a stable trading environment.
Managing China’s rise in partnership with its allies remains Canberra’s predominant foreign policy mission. US unsteadiness would add significantly to the challenges of such a task, especially at a moment when Beijing is testing the limits in the South China Sea.
Finally, the Trump victory – coming as it does on the heels of the Brexit vote in Britain and, closer to home, the success of One Nation – has lessons for mainstream politicians.
Populist forces antagonistic to the status quo have been unleashed with all sorts of implications for the conduct of politics as usual. Trump has ridden a wave of popular disaffection that shows little sign of receding.