This post is intended to help international clients understand the true nature of this historic US election and objectively understand the impact to clients. Clients can set up an inquiry for more details specific to their business scenario. This is part 1 of a two part series covering the Political, Economic, and Societal issues. Part 2 will cover Technology, Environmental, and Legistlative issues.
Election Fought On Championing “Les Deplorables”
A populist revolt erupted in the United States throughout the 2016 presidential election. In one of the most heated, combative, and unpredictable elections in American history, Donald Trump emerged victorious early November 9th, 2016. The pillars of discontent stem from lack of middle class opportunity, unfair trade deals, illegal immigration, and the selling out of the country in the name of globalism. Amidst a barrage of global and personal attacks by the mainstream media to suppress the key issues of discontent, Donald Trump emerged as the champion to not only give a populist voice to the revolt, but also bridge the economic and digital divide between educated urban elites and the average American. Election results confirmed that the silent majority of America had spoken up against the political correctness culture and globalism. This appears to be the second incarnation of the Tea Party.
Despite the day after media perception that the race was lost due to sexism, voting data proved that women did not back Hillary as she only garnered 54% of the female vote compared to Trump’s 42%. In fact the perpetuated fallacies by the mainstream media have been debunked by exit polling data. For example, Trump (29%) garnered slightly more Hispanic votes than Romney (27%) despite the calls against illegal immigration. Clinton actually took 52% of voters earning less than $50k while Trump only received (41%) of their votes. The big gap, as with BREXIT, was in the rural vote where Trump dominated with 62% of voters versus Clinton’s 34%.
Unpack The Impact Using The PESTEL Futurist Framework
Source: Wall Street Journal
POLITICAL: Call For Unity Is Real
Former Secretary of State and Presidential candidate, Hillary Clinton, called for unity and the acceptance of the results on November 9th, 2016. Immediately after Mrs. Clinton conceded the election, President Obama publicly addressed the country and committed to rooting for the President-Elect’s Success. On November 10th, 2016, President Obama met with President-Elect Trump at the White House for 90 minutes as the First Ladies, Vice-Presidents, and staffers all got a chance to meet each other.
Point of View (POV): While the election was bitterly fought, the powers that be understand that peaceful transition of power remains a bedrock of American democracy. Left wing groups, fueled by the media backlash and upset with the election, will continue to protest the election for weeks to come. However, the main impact will come with Republican domination of:
- State governors
- State legistlatures
- Selection of the Supreme Court justices
Clients can expect a more fiscally and socially conservative wave to come across America for the next two to four years. With full control of Congress and potentially the Supreme Court, the onus is on the Donald Trump and the Republican Party to deliver on the campaign promises or face the wrath of the populace.
ECONOMIC: Expect An America-First Approach
Overall the outlook for the economy appears to be optimistically positive. While after market trading was down as much as 3.5% post-election results, the Dow recovered with at 275 point gain by the end of November 9th and the S&P 500 rose 1.11%.
Source: Dow Futures
Point of View (POV): Trump’s clear stance on economic policy provide a decisive and positive road map for clients. Expect the following actions to be set in motion in the first year:
- Repatriation of $2.4 trillion of US overseas profits. Policies will be put in motion to bring back overseas profits at a lower more acceptable tax rate while directing the reinvestment towards domestic investment. This one-time windfall will open the door to new domestic investments and job creation.
- Renewal in domestic infrastructure investment. While there is low expectation that the wall between the US and Mexican border will be built, preliminary discussion with Congress on both sides of the aisle call for significant investment in highways, airports, schools, military, and veteran’s healthcare. Keep in mind Mexico has already built a wall on their southern border to keep the Central Americans out. This outlook will mostly likely prove to be the first bi-partisan act to pass congress in the first 100 days of a Trump presidency. Trump is also expected to improve investment conditions in the inner cities in order to improve opportunities to renew the urban cores through education and job training.
- Renegotiation of bad trade deals. Trump clearly stated he wanted an America First trade policy. Expect the Trump administration to put the top trade negotiators on deals to move from lose-win to win-win deals. The goal is to represent the average American and not negotiate one sided deals that negatively handicap US competitiveness. The Transpacific Pacific Partnership (TPP) will most likely be renegotiated or dead on arrival in current form. NAFTA will be updated to address the China loophole. The US will most likely lend assistance and leverage with Britain in EU Brexit negotiations. The US will be aggressive in enforcing trade imbalances and currency manipulations.
- Reduction in outsourcing but increase in near sourcing. Expect the America first approach to impact services as well as manufacturing. While overall outsourcing is flat or down, near-sourcing and the growth of local presence in US operations by Indian IT services firms has grown. Given many Indian IT companies have a significant US presence and employment in the US, this should not have as severe impact as originally feared. Overseas firms can increase their US presence in order to hedge their risks.
- Revaluation of the H-1B process delinked from immigration policy. There will probably be a relook at comprehensive immigration but the reform needed in H1-B comes from a shortage in more visas. Unfortunately, there is a common perception that US technology companies have abused the process in order to find labor arbitrage for talent, so this portion may receive more scrutiny.
- Return to lower tax rates. Corporate tax rates will drop to 15 to 20%. Personal income tax rates will collapse into 3 brackets of 12%, 25%, and 33%. Itemized deductions would be capped at $200,000. Dropping tax rates should encourage more direct foreign investment and stem the move of factories and corporate inversions. Moreover, simplification of the personal income tax and removal of the AHCA provision should free up consumer spending.
SOCIETAL: Prepare For A More Conservative And Different Socially Tolerant America
Trump’s movement did not take the traditional GOP path of evangelical Christian pandering. However he did make clear whom his potential Supreme Court nominees would be. While this has social groups such as the LBGTQ community up in arms, the Trump administration appears to be focused on job creation and not creating social warfare. The Christian Coalition begrudgingly voted for Trump as he was seen as the better alternative for selecting supreme court nominees. Other members of Congress hopefully have not misread the mandate as a push to a conservative social movement, as this is not the main root cause of the Trump rise. Economic disparity and opportunity is the fundamental issue.
Point of View (POV): Trump’s team has not been focused on battling on social issues but the strong conservative influence may affect other issues:
- Shift from activist judges to strict constitutionists. The key trait is a shift from appointing liberal activist judges who failed to uphold the Constitution to appointing more Constitutional traditionalists who take strict interpretations of the Constitution. The correct solution is to update the Constitution however, both sides benefit from a war rather than a solution.
- Enforce the rule of law. Recent attacks on law enforcement and the failure of mayors and other executive branch leaders to enforce the law as written have created a dangerous climate as race relations have deteriorated. Expect a swift move to eliminate funding to Mayors who support sanctuary cities, greater support for law enforcement at the expense of some personal freedoms, and a championing of those in blue. Expect cities such as Chicago with an increasing murder rate to receive more attention to bring back law and order and respect for police authority while involving the community in policing itself. Cop killing is not acceptable by anyone. And yes, all lives must be addressed fairly. Police corruption will also be addressed in a similar manner of how the NYPD transformed itself.
- Battle on Illegal versus legal immigration. The media misconception of immigrant bashing by the Republicans is far from the truth. The battle is against illegal immigration. Both parties are in favor of legal immigration. Illegal immigration is the equivalent of cutting in front of a very long line and set of requirements that legal immigrants follow. For those seeking to flee the US for Canada, a close look at Canada’s requirements shows a very exhaustive set of requirements that are both demand and economically based along with the usual asylum provisions. Trump is not against immigration. He wants to improve the value of immigration by uprooting illegal immigration. Should moderate forces influence him, a path to citizenship and guest worker visa expansion will most likely emerge as proposals.
- Repeal and replacement of ObamaCare. ObamaCare or the Affordable Healthcare Act has led to a very expensive expansion of coverage at an unsustainable cost. Replacement for Obamacare will most likely address provisions such as coverage of pre-conditions, under 26 dependent care, and competition across state lines.
The Bottom Line. A Trump Presidency Will Focus First On Economic Issues While Swinging The Social Pendulum Back To The Center
Early indications from the stock market and from business leaders show hope in how Donald Trump has transitioned from candidate to President-Elect. Congressional leaders across the aisle have all hinted a spirit of cooperation. The next 77 days until inauguration will require an intense focus from the transition teams. The good news – President Obama’s team has pledged to provide a seamless and classy transition as President Bush did during their handover. As with all presidencies, the honeymoon typically lasts for the first 100 days and Trump has raised expectations that he will have to quickly fulfill. The sequence of his actions over the next 180 days will dictate whether he will make america great again or have provided another false hope as with the previous President.
Unlike European center right parties which would still be seen as liberal in the United States, the key shifts in the political environment, economic, and societal show a swing back to a traditional American values center (circa 1980). The Democrats have enjoyed eight years of media backing and a dictatorial approach to government while the Republicans actively blocked any movement they could. Any rapid movement by Trump to the right will be seen as a loss to the left’s progress. Too slow of a movement to the center by Trump will be seen as a failure to govern. However, should President-Elect Trump grow the economy, the social issues will fall aside. Based on Trump’s playbook, this appears to be the plan. Grow the pie, increase opportunities, and not hamper America in her efforts to come back.
Ready for a new administration? Does it seem as scary as the media has made it to be? Let us know what your experiences have been and feel free to reach out. Add your comments to the blog or reach me via email: R (at) ConstellationR (dot) com or R (at) SoftwareInsider (dot) org.
(Cross-posted @ A Software Insider's Point of View)