Musha Research Commentary

3 June 2024

S\
Strategy
Bulletin (No. 355)

A Consideration of “Wha if Trump win”
～Is Trump's Challenge a Factor in Higher Stocks and Dollar?
The outcome of the election cannot be predicted. However, since there have been so manyinquiries about “what if Trump win,” we have summarized the points of contention as follows.

(1) The Mystery of Trump's Prevailing Position
The U.S. presidential election, the world's biggest political and economic event, isfast approaching in six months. The surprising thing is that Mr. Trump, who has astrong impression of uncooperative and egoistic person is reported to have a strong
possibility of being reelected. Four criminal charges have been filed against him, andon May 30 he was found guilty for the first time as a former president, but the negative
impact on the presidential election is seen as limited. Trump, who has refused toacknowledge Biden's victory in the last presidential election as stolen at all andcontinues to deny the legitimacy of the current president, was even viewed as a deadman until a year ago. Once the criminal prosecutions began, his campaign of politicalpersecution was successful, and his approval ratings increased. In the seven close
battleground states (Arizona, Georgia, Nevada, Michigan, North Carolina,
Pennsylvania, and Wisconsin), where Biden won six last elections, surveys show
Trump ahead in all states this time. This is a major reversal of media and pundit
predictions. Why is this?

Musha Research Co., Ltd.
President
Ryoji Musha
musha@musha.co.jp
http://www.musha.co.jp
Tel ＋81-3- 3740 2143
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108-0075,Japan

Major Changes in the Structure of Employment

We must assume that major structural changes are occurring at the base of the U.S.
economy and society, and that Trump's bold challenge to these changes is beginning
to mesh with the voters.
Figure 1: Employment by Industries
Figure2: Labor share declining
200 (1995 Q1=100)
190
180

Total
Government

Education &health services

70

Professional &biz services

65

170

160
150

(%)

Labor compensation(Include fringe benefits)

Construction
Leisure andhospitality

140

60

130
120

Financial activities

110

Trade, transportation

100& utilities

Information

90
80

55

50

Wages

Manufacturing

70
60

45

95 97 99 01 03 05 07 09 11 13 15 17 19 21 23
Source: US Dept of Commerce, Musha Research

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60 65 70 75 80 85 90 95 00 05 10 15 20
Source:Department of Commerce,Musha Research3June 2024

Strategy Bulletin vol355

Two changes are occurring in the U.S. economy and society. The first is the change in the structure of
employment and the disappearance of the middle class due to advances in technology and the international
division of labor.
The manufacturing industry, which once supported the middle class, has become dramatically more
dependent on foreign countries because of globalization, and employment has declined. 50 years ago, in
the 1970s, the U.S. was the world's largest manufacturer in almost all fields, from light industries such as
clothing and toys to heavy industries such as steel, shipbuilding and chemicals, electronics, communications
and semiconductors, machinery and automobiles. The U.S. used to be only 10% dependent on imports ofmanufacturing products (goods), but now it is 80-90% dependent on imports, resulting in an overwhelming
loss of jobs. The new jobs that filled the gap were in the high-wage business services, financial, andinformation and communications industries, and the low-skilled and low-wage personal services, foodservices, entertainment, and medical and long-term care industries, which are diverse and disparate. As aresult, the labor share fell from just under 60% to just under 50%, putting a brake on wage growth andmaking households dependent on social insurance, public assistance, and asset income such as dividends
and interests for much of their income rather than wages. This has widened the gap between asset holders
and have-nots.
Figure 3: Trends in the composition of U.S. Personal income, with asset income andgovernment spending covering the decline in the wage ratio
100.0Transfer Income(Government social benefit)

90.0
80.0
70.0

Proprietrs' Income
60.0

Employer Contribution foe Pention&Insurance

50.0
40.0

Wages

30.0

Rent

Income from Assets(Interests & Dividends)

20.0
10.0
0.0
71

75

79

83

87

91

95

99

03

07

11

15

19

23

Source: Department of Commerce、Musha Research

Backlash Against Excessive Minority Favoritism
The second change is the spread and radicalization of diversity and inclusion. The pursuit of human rights,
protection of the vulnerable, fairness, and the movement to create an environment where diverse members
can share job satisfaction by having their differences respected, ideals that are also common to the SDGs
and ESG, has become radicalized and left leaning.
Critical Race Theory (CRA) that whites are born with the original sin of discrimination, the BLM (Black Lives
Matter) movement, excessive concern for the weak such as different passing scores based on race, andanti-history such as denying the Founding Fathers as slave owners, etc., are all harmful effects of leftward
leaning. The victimhood of reverse discrimination caused by this is also growing among the less-educatedwhite population, which is on the verge of falling into minority status (the percentage of whites has
plummeted from 84% in 1965 to 58% in 2020 and is certain to fall below 50% by 2060). This resonates withthe backlash against radical de-fossilization.
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Disparities are shrinking
The gap between whites and blacks, Hispanics, and other minorities has narrowed markedly in recent years,
both in terms of unemployment and average wages. In addition, since the Corona pandemic, there has beena tightening of labor supply and demand in low-wage, less-than-college-educated occupations that do not
require much skill, such as truck drivers, waiters, and waitresses, and the wage gap has narrowed overall.
In this context, there are growing calls for preferential treatment of minority groups.

(2) Clarifying his position by identifying his enemies
By envisioning his enemies, Trump is clarifying his stance in answering these national grievances head-on.
The first enemy is globalization and China, which have eliminated manufacturing jobs in the U.S. The second
enemy is the dismantling of the “deep state,” a group of vested interests and bureaucracy that promotes
excessive favoritism toward the weak, reverse discrimination, and historical denialism. Although thisassumption of the enemy is wild and not necessarily rational, as an election slogan, it must have struck achord with the public sentiment.

Existing Political Parties Failing to Respond to Public Sentiment
Both Republicans and Democrats, the existing political forces, have failed to respond to such public
discontent. In the past, the Republican Party versus the Democratic Party had clear partisan lines of
opposition, such as wealthy versus working people, white versus colored, conservative versus liberal, small
government versus big government, and liberalism versus protectionism, but these lines have largely been
lost and the situation is now chaotic. At a time when both the Democratic and Republican parties are in needof redefinition, Trump is the first leader to jump out and advocate for redefinition. While Trump enjoys
overwhelming support within the Republican Party, many of his arguments are far removed from traditional
Republican values. It could be said that Trump has remade the backbone of the Republican Party.
It is hard to understand that a millionaire and beneficiary of the capitalist system is advocating antiWashington and anti-establishment on behalf of the interests of the weak who have been left behind andclaiming that power will be reclaimed from the “deep state,” but that is what Trumpism is all about. Is itreactionary, as in simple white revolution and restorationism, or is it about bringing about further
development through reform? The anti-Trumpers say the former and the pan-Trumpers take the latter
position, but this is a phase in which both sides have a point.

(3) Policies that Trump is likely to launch if reelected
Push forward the fight against two enemies: China and the Deep State
It is too early to say but let us consider what kind of policies Trump will propose if he is elected president.
We need to make a distinction between campaign rhetoric and the policies that will be truly pursued. First,
the fight against two enemies will be conducted. The U.S. will take a stronger stance against China, whichseeks not only to steal U.S. jobs but also U.S. hegemony.
Policies such as raising import tariffs from China to 60% and eliminating China's most-favored-nation statuswill further accelerate decoupling from China. The high fence previously limited to a few advanced andmilitary technologies, such as advanced semiconductors, will be extended to more fields, and the level ofdependence on China will decline even more rapidly. It is also likely to “eliminate bad bureaucrats and bringdemocracy back to corrupt Washington. The scope of the political appointment system, which has been
limited to about 4,000 people, has been expanded to 50,000, suggesting a major reshuffling of the mid-levelbureaucrats. This may trigger a fierce confrontation involving the media and academia as criticism of a witch
hunt of bureaucrats who do not agree with Trump's wishes grows. The fierce criticism of Trump that is
occurring now may be a prelude to such a confrontation. The U.S. has a history of persecuting radical ideas,such as McCarthyism and the Red Purge.
It is also certain that Trump will reverse the environmental policies promoted by the Biden administration,such as withdrawing from the Paris Agreement, reducing, or suspending EV subsidies, and promoting
pipeline construction. Furthermore, the government will also strengthen border controls and take stronger
measures against illegal immigration.

Clarify pro-wall street and pro-capitalism
On the other hand, some policies are changing their electoral rhetoric. The tone of the prohibition of abortion

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3June 2024

and opposition to support for the war in Ukraine has begun to loosen considerably. It is also likely that hewill continue to represent the interests of Wall Street and adopt stock price friendly policies while verballycalling himself anti-international capitalist, which will be no different from the first term of the Trumpadministration. Last time, he implemented the Dot-Frank amendment, the Volcker rule, and other financial
deregulation measures, but he may also retract some of his anti-market policies, such as the elimination of
the tax on stock buybacks introduced by the Biden administration. In the end, Trump will make his position
on behalf of finance capital and Wall Street interests and in defense of capitalism clear.

He will not pursue a weak dollar policy
Although Trump is thought to favor a weaker dollar because of his focus on the trade deficit and his reference
to a weaker currency during his last presidency, he may rather adopt a position of accepting a stronger dollar.
The Trump administration has been putting forward high tariffs as a means of protectionism. The
administration has already proposed a 10% flat tariff on imports and a 60% tariff on imports from China, andif import tariffs are added to a weaker dollar, it is inevitable that U.S. import prices will rise sharply, but thisis unlikely. Rather, it is likely that they will use a combination of high tariffs and a strong dollar policy. The
rational choice would be to allocate tariff policies to defend U.S. industries and to use the strong dollar tointensify the offensive in the fields of AI and digital technology, where the U.S. has an overwhelmingly strongmonopoly.
In addition to the market-friendly policies envisioned above, former USTR representative Robert Lighthizer,
former presidential adviser Peter Navarro, and former National Economic Council (NEC) Chairman Larry
Kudlow, who served in the first Trump administration, are participating in policy preparations, and theconsistency of economic and trade policies is almost certain to be maintained.
As in 2016, contrary to prior concerns, the stock market is likely to welcome the “What if-Trump win”.

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