Trump’s own ‘Wag the Dog’ moment reveals mounting strains on his presidency
There were just eight days last year when the benchmark S&P 500 equity index rallied or declined by 1pc or more, but there have already been more than a dozen so far this year – is it time to fret?
In the 1997 film Wag the Dog, a fictional and unnamed US president is engulfed in an underage sex scandal, forcing his top aide to enlist the help of a spin doctor to divert attention, by fabricating a war in Albania.
Stanley Motss, a Hollywood producer (played by Dustin Hoffman) is employed to create the war, and the spin doctor Conrad Brean (Robert De Niro), attempts to pull it all off, just days before the presidential election.
It was released a month before the outbreak of the Monica Lewinsky scandal and the subsequent bombing of the Al-Shifa pharmaceutical factory in Sudan by former US President Bill Clinton’s administration – unsurprisingly the media to drew comparisons between the film and reality.
Donald Trump’s high-stakes gamble last Thursday to accept an invitation to meet North Korean leader Kim Jong-un – the first summit between the US and the Hermit Kingdom – not only has a Wag
the Dog-ish ring to it, but is a reflection of the mounting strains on Trump’s turbulent presidency.
As the new revelations of his presidential campaign’s alleged collusion with Russia continue to emerge, financial markets already make it increasingly difficult to ignore the nationalist instincts of the White House.
And it is no coincidence that Trump’s decision to meet Kim for talks over the de-nuclearisation of the Korean peninsula – the boldest gambit of his presidency which, according to Rex Tillerson, the US Secretary of State, was “a decision the president took himself”, epitomising Trump’s impulsive and erratic behaviour.
It even came just a day after his top economic adviser Gary Cohn resigned after losing a fight to prevent the imposition of global tariffs on steel and aluminium imports.
The summit announcement also comes at a time when US equity markets – whose strong gains since the 2016 presidential election have been repeatedly touted by Trump as a personal vindication of his administration’s policies – have suddenly become much more volatile.
In the year following his election victory, Trump presided over the calmest conditions in US stock markets in half a century.
That tranquillity was broken with a bang last month. While there were just eight days last year when the benchmark S&P 500 equity index rallied or declined by 1 per cent or more, there have already been more than a dozen so far this year, according to DataTrek Research, a US consultancy.
What’s more, international investors are pulling money out of US stocks.
Last week, American equity funds suffered a further US$10 billion in outflows, according to EPFR Global, a data provider.
The escalation in trade tensions is fuelling the volatility that erupted at the end of January.
By imposing stiff tariffs on imported steel and aluminium – and threatening new levies on European car imports should Europe retaliate – Trump has crossed a Rubicon.
Even though Canada and Mexico were exempted from the measures, protectionism has moved from the realm of rhetoric into action.
The departure of Cohn, Wall Street’s representative in the White House, leaves the trade (and in particular China) hawks in the ascendancy and further strains relations between Trump and his fellow Republicans in Congress, many of whom strongly object to the tariffs.
For the past year or so, international investors were willing to turn a blind eye to Trump’s nationalist inclinations, partly because markets have been so buoyant but also because of misplaced faith that he could be talked out of implementing irresponsible policies.
Markets have taken great comfort in Trump’s pro-growth agenda, but investors have never trusted the man himself.
This lack of trust has now become a much bigger vulnerability – for markets and for the crisis-ridden White House.
The signs of chaos in Trump’s presidency are mounting: Cohn’s departure in protest against punitive tariffs which severely undermine the multilateral trading order, the intensification of the Russia probe which has already led to dozens of high-level resignations and indictments and a much more unpredictable and volatile market environment, fuelled by growing concerns about a more aggressive tightening in US monetary policy.
So it’s no surprise the president is going for broke by agreeing to a face-to-face meeting with Kim.
While the White House should spare no effort to avert an armed conflict on the Korean peninsula, there are ample reasons to doubt whether any breakthrough is possible.
Although years of traditional diplomacy have failed to de-escalate tensions between Washington and Pyongyang, the prospect of an impetuous and inexperienced president trying to secure some sort of a deal with a paranoid dictator who is unlikely to abandon his nuclear programme is frightening.
Yet the combination of mounting strains on Trump’s presidency and, just as importantly, the real estate mogul’s renowned bravado – one US foreign policy expert rightly calls the president’s decision to meet Kim “vanity over strategy” – has convinced Trump that it is a gamble worth taking.
While his supporters may agree, the rest of the world has good reason to fret.
Nicholas Spiro is a partner at Lauressa Advisory