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Michael Power, Strategist, Investec Asset Management



On November 9th 2016, a political earthquake hit the world’s most powerful nation, the United States. Against virtually all expectations, Donald Trump, a man with no previous experience in an elected office, has been elected 45th President of the United States. In doing so, he beat Hillary Clinton, the consummate insider and in Obama’s words “the most qualified person ever to run for the office of the United States President”. Never before in American history has there been such an electoral upset. 

There will no doubt be many post mortems as to what happened. But already the following powerful pattern is emerging: Trump managed to attract the overwhelming support of mainly rural, largely white, socially conservative, usually not college America. Citizens who do not normally vote at all turned out to vote for him in large numbers. It is a story we have heard before in 2016: in the Brexit surprise in the United Kingdom, the same alliance came together to vote to leave the European Union and to shock the political elite in the process. 

And the earthquake did not end with the Presidency. The Republican Party easily retained control of both Houses of Congress, where the Democrats had high hopes of at least capturing the Senate. And with Donald Trump in the White House, expect the 4 Liberal versus 4 Conservative gridlock in the Supreme Court to be broken by the appointment of a 5th Conservative justice. The result will mean all four branches of the US political system will now be effectively controlled by the Republicans.  

What happened in Britain in June was a mere dress rehearsal for what has now happened in the United States. A maverick outsider who was shunned by the political elite – even the elite within his ‘own’ party, the Republicans – has convinced middle America geographically as well as middle class America socio-economically, that the insiders of Washington DC have been selling America short for decades. Instead he has promised radical change. So rather than elect Hillary Clinton, the American people have selected a flashy New York real estate mogul-cum-celebrity TV show star in the form of Donald Trump to be their next President. 

What in the Western World is going on? Quite simply, the middle classes are revolting. And, as any good member of that middle class knows, the way they do this most effectively in democracies is via the electoral pen and not the sword. And why are they revolting? If a single chart can give an answer, it is the following one from the Census Bureau. It illustrates that the majority of the population in the United States have, since 2000, ceased to see their real incomes grow. 

Figure 1: Real household income at selected percentiles: 1967-2015

Note: The data for 2013 and beyond reflect the implementation of the redesigned income questions. Income rounded to nearest $100. Source: U.S. Census Bureau, Current Population Survey, 1968 to 2016 Annual Social and Economic Supplements.

Why is this? Again if a straightforward chart can illustrate an answer, it is the now infamous “elephant chart” of Branko Milanovic of the World Bank.  

Figure 2: The elephant chart; global income growth, 1988-2008

Source: Branko Milanovic at the World Bank. 1988-2008.

Here we see the middle classes of the West have seen – in the two decades to 2008 – their earning power undermined by the rise of middle class of Asia and especially that of China. This ascendant group have worked for wages that are a fraction of those of their Western counterparts. Quite simply, the middle classes of the West have been undermined by the middle classes of the East.

This provides the backdrop for the revolution that has just happened in the United States.

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