Malcolm Turnbull needs to learn to be “frenemies” with Donald Trump to protect Australia’s standing in the shifting world order, according to geopolitics expert Stephen Kotkin.

Asked what advice he would have for Australia’s Prime Minister and Foreign Minister this week, following Donald Trump’s surprise victory in the United States presidential election, Kotkin said diplomacy would be key.

“Australia obviously wants to avoid having to pick sides between the US and China,” Kotkin said. “If Australia feels compelled to make a choice either way it will be very difficult to navigate.”

His warning comes against the backdrop of increasing Chinese “assertiveness” in the Spratly Islands region.

Kotkin said there is now a real, albeit slim, chance that President-elect Trump will usher in a shift in the world order.

He offered the brutal perspective that in the international geopolitical context Australia is “China’s mine” and “The United States’ aircraft carrier”, although the Australia relationship is “extremely valuable” to the US.

Kotkin is the Birkelund Professor in History and International Affairs at Princeton University and a fellow at the Hoover Institution at Stanford University. He is a former advisor to feted investor George Soros’ philanthropic Open Society Foundations.

He spoke to Investment Magazine during his visit to Australia as a guest of the masthead’s publisher, Conexus Financial.

At the Conexus Financial Fiduciary Investors’ Symposium in Healesville, Victoria November 14-16, Kotkin briefed a gathering that included investment bosses from some of the largest superannuation funds in the country on the potential implications of Trump’s victory.

Collectively the 40 institutional asset owners represented in the room controlled roughly $930 billion.


Impossible to predict

Unfortunately, even for a pre-eminent expert in geopolitical risk, what Trump will do next – and how that might ricochet through global markets – remains anyone’s guess.

One thing that is almost certain to change under a Trump administration – and set to have direct implications for investors – is that by 2018 the US Federal Reserve will have a completely new board.

There is “no way” Trump will re-appoint US Federal Reserve chair Janet Yellen, Kotkin said.

Another Trump policy set to have a direct impact on share market investors is the plan to repeal the Affordable Health Care Act, known colloquially as Obamacare, which has already sent some health stocks plunging.

Kotkin thinks Trump will most likely push through some of his promised tax cuts, “maybe even for individuals as well as corporations”.

Government spending on infrastructure is also tipped to get a boost, although institutional investors are likely to be disappointed to see little to none of that allocated to mass transit projects.

Kotkin described Trump’s victory as “democratic electoral discovery”, a riff on the investment concept of market-based price discovery.

“Trump fired up the shrinking white majority who have been feeling increasingly marginalised,” he said.  “If you want to blame anyone for Trump, blame white women. No one believed women would vote for him and they came out in force.”

Kotkin said it would be foolish to underestimate Trump now.

“The liberal world order is not about to dramatically collapse, but is has been eroding for some time prior to Trump’s election,” he said.

“It seems improbable that he [Trump] will be able to push through most of the policies he campaigned on, but look at how many improbable things he has already achieved to get elected … he could keep surprising.”

Kotkin said the workings of the electoral college voting system meant Trump got a “winner takes all” result by a “ridiculously small” margin.

“It was a loser’s victory.”

Kotkin said Trump’s biggest logistical hurdle would be assembling the staffers to fill the 5000 presidential appointments up for grabs in Washington.

“They can’t all be filled with family, the little kid is too small, and the establishment are all hawks and pro free trade.”


Foreign relations

On the foreign relations front Trump will have his hands full contending with the three major revisionist world powers of Iran, China, and Russia.

“Russia does not accept the 1991 settlement and now has the means to revise it”.

“Putin has already taken Moldova, Georgia, Crimea, and Kazakhstan is next.”

Kotkin predicted that Putin would wait for Kazakhstan President Nursultan Nazarbayev to die and then invade that former Soviet state.

Although he finds Trump “disgusting”, Kotkin is now barracking for him.

“I want to see him be a success because I don’t want to see any more wars in Europe or any more Iraq wars … I’m not optimistic Trump can manage this but it is too early to close the door on the idea things might get better.”

Even if Trump avoids the worst, he could he unwittingly accelerate America’s decline, Kotkin said.

“Or maybe via action and bluster he could bring about renewal.”

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