Sebastian Mallaby, author of "The Man Who Knew: The Life & Times of Alan Greenspan," is the Paul A. Volcker senior fellow for international economics at the Council on Foreign Relations and a contributing columnist for The Post.
Last year, in the wake of President Trump's election, financial markets took off on a wild sprint, apparently believing his promise to make America great again. Ten months later, the financiers are wiser: The president's immigration clampdown alarms them; his divisive response to Charlottesville appalls them. Despite the heady expectations of this past winter, there has been no sign of an infrastructure plan; few expect serious tax reform given the bungling of health-care legislation, not to mention the sidelining of Gary Cohn, the tax plan's chief Sherpa. And yet, as if by a miracle of levitation, the Standard & Poor's 500-stock index is still about a fifth above its level on the day of the election. What's happening?
The short answer is that foreign leaders have done a surprisingly good job of making foreign countries great again. From Xi Jinping's China to Emmanuel Macron's France, politicians are delivering policies that businesses want. As a result, the world economy is growing faster than at any time since the post-crisis bump of 2010. The yuan and the euro have risen sharply against the dollar. A more competitive greenback and the prospect of strong exports have supported U.S. stock prices. A Chinese communist and a French technocrat have done more for American business than Trump has.
Consider China's recent performance. In 2015 and again in early 2016, China suffered acute financial turbulence. After averaging almost 10 percent growth between 2006 and 2014 and turbocharging the global economy, China suddenly emerged as the chief risk to the world. In its headlong drive to invest in coal mines and steel plants, it created a glut that was driving foreigners out of business. In its faltering experiments with financial modernization, it allowed cracks to appear in its currency controls: Well-to-do Chinese families were rushing to buy anti-dictator insurance in the form of real estate in Los Angeles or London. The government's war chest of foreign currency reserves shrunk by about $1 trillion as it desperately bought back yuan to offset capital flight.
In the past 18 months, however, China has restored calm. Last year the government ordered coal mines to cap production at 276 days; steel output was also cut, and producers the world over have profited from recovering prices. Meanwhile, authorities have put a stop to capital flight, using dictatorial powers to crush purchases of anti-dictator insurance. The process has not been pretty, but capital flight has ended and the yuan has recovered. Any company connected to China's global supply chains is breathing more freely.
Now consider the good news from Europe. Before France's spring elections, half the electorate supported business-unfriendly candidates of the far right and left. That polarization allowed Macron to power through the middle and seize the prize of the presidency, which he is now using to advance much-needed liberalization of hiring and firing. The challenge of labor-market reform has defeated other French leaders, but Macron is determined. He means to push through the reforms by decree, and he has persuaded two of the three main labor unions to stay out of the street protests against him. France's stock market index is up by nearly a fifth in dollar terms this year.
Meanwhile, Germany and Italy, the two other major euro zone economies, are also doing well. Angela Merkel, the calm anchor of the region, is cruising toward her fourth electoral mandate in the vote on Sept. 24. To ease the way for Macron's difficult labor reforms, she seems likely to use her refreshed authority to relax Germany's habitual enthusiasm for budget austerity. Italy, for its part, has emerged stronger from a recent round of bank bailouts, and its populist parties have scaled back their scary promises to quit the euro. If the European Central Bank is forced to dial back its extraordinary monetary stimulus — it is running out of German bonds to purchase — the combination of a less austere Merkel and healthier European banks should be enough to sustain recovery.
The one biggish economy that's foundering is the one Trump has celebrated: Brexiting Britain. There, populists are proving politically incompetent and economically harmful. British growth, which sputtered in at an annualized rate of 1.2 percent in the second quarter, is the lowest among the major economies. The pound is weak, even against the limping dollar. Inflation has jumped. Perhaps it is time for Trump to take stock of the world and ask himself: Who's looking great — and who is not?