Wednesday, March 1, 2017

American Industries See Two Sides Of Trump

By Megan McArdle
The Bloomberg View
March 1, 2017

Late in election season, as pundits tried to feign uncertainty about the inevitable Clinton coronation, a few folks considered what might happen to the financial markets if Donald Trump were elected. The answer a lot of them came up with was pretty dire: a big crash. Against all predictions, Trump was elected. And then, right on schedule … the stock market indices soared to new records?

Umm, what?

That’s the question that a lot of folks in the punditocracy are asking: why do markets seem so happy about Trump? While Washington is swooning in despair at the incompetence of his early days -- the late-night Twitter storms, the failure to even fill the staff jobs he’ll need to get anything done, the total absence of anything resembling a detailed policy plan -- Wall Street seems pretty pleased with how things are going. Why the disconnect?

So when I sat down to listen to Trump’s speech tonight, I asked myself how this would sound to folks on Wall Street, or businessfolk elsewhere. The answer I came back with was that it probably sounded a lot like his earlier pronouncements: a decidedly mixed bag.

On the one hand, lower corporate taxes! Pipeline approvals! A trillion dollars for infrastructure! A less ponderous and fussy FDA!

On the other hand, Fair Trade (pronounced “protectionism”), immigration crackdowns and a jeremiad against “artificially high” prescription drug prices. And where’s he getting that trillion dollars, anyway?

For businesses, in other words, there’s a Good Trump and a Bad Trump. Wall Street seems to have decently strong faith that Good Trump will do what he promises, while Bad Trump is probably just saying that stuff to keep the voters pacified, but doesn’t really mean it.

Like most Washingtonians, I think that Wall Street fundamentally misunderstands how stuff happens in my city. Good Trump is promising stuff that will cost an astronomical amount of money. To make good on those promises, he will need to get bills through Congress. Those bills will have to be scored by the Congressional Budget Office, which is going to report, correctly, that they will cost an astronomical amount of money. Good Trump is going to have to prioritize, or confess to voters that he’s sticking their grandchildren with the bill for his warm personal gift to the corporation that shipped jobs overseas.

Bad Trump, on the other hand, is promising popular-sounding stuff that can often be accomplished, at least in part, by the executive branch without new legislation. If I had to bet on which Trump will predominate, I’d put my money on nativism, not tax reform.

This speech doesn’t really move that needle. Of course, “business” is not monolithic; certain industries were undoubtedly keenly interested in what he had to say tonight. Health-care companies, for example, were probably hanging on every word as he gave the most detailed outline yet of his vision for an Obamacare replacement. (Not very detailed, and basically a restatement of the tentative consensus among Republicans. But baby steps.) Pharmaceutical companies were undoubtedly riveted by his discussion of drug prices and the FDA, though I doubt many of them would willingly accept price controls or weakened patent protection in exchange for somewhat faster regulatory approvals.

But most of the companies that stand to benefit from the policies he outlined -- heavy construction companies and small manufacturers threatened by foreign competition, for example -- didn’t really hear anything new, though I’m sure they were glad of a recommitment in a major speech. And most of the industries that stand to lose, such as those that employ large numbers of low-skilled immigrants, were probably unsurprised to hear him reiterate his desire to shield American workers from foreign competition.

I will be surprised if American stock markets react strongly to this speech in either direction. For now, I expect that investors will keep betting on Good Trump, at least until he decisively proves them wrong. And at that point … well, in hindsight, some predictions turn out to be flatly wrong. Others, in the fullness of time, stand revealed as extraordinarily prescient -- just slightly premature.

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