It has been a week since the bombshell election of 2016. Depending on where you live and your views you are depressed, ecstatic, protesting, hopeful. Putting aside politics for the moment, let’s examine how President Trump’s economic and jobs plans could look:
1) Trying to Bring Back Offshored Jobs to the US
I’ve written before about the difficulty of onshoring jobs already abroad – as the economy changes so do the job opportunities. This being said, President Trump is likely to try to force companies to bring back jobs through efforts including addressing tax law that currently allows companies to keep profits offshore without paying taxes. Trump hopes to force companies such as Apple, Pfizer and others to hire more people in the US by keeping work currently done abroad in the US. This will likely increase employment to some degree, but the cost of related goods will also go up.
Trump will be better off focusing on education to retrain workers to focus on the jobs of the future. These will be manufacturing and service jobs, but even for the traditional manufacturing sector advanced computer skills and other highly technical requirements are now the norm, resulting in a skills gap with significant numbers of unfilled positions today.
2) Investing in Infrastructure
One of the few areas that President Elect Trump and Hillary Clinton shared during the campaign was support for renewed efforts to improve US infrastructure. Trump is unlikely to support mass transit and other public works projects, but talks about modernizing the electricity grid, improving bridges, roads and tunnels and other improvements in a budget neutral way. While not impossible to implement, expecting the private sector to pay for most of these improvements will be a challenge.
There are certainly plenty of countries that do public private partnerships (PPP or P3) more than the US, including the United Kingdom and Canada. However, the complexities and cost effectiveness of PPP are not clear and many countries have pulled back from them. The Wall Street Journal has compared Trump’s plan to that in Atlas Shrugged. I’m all for infrastructure improvement but the revenue neutrality of the plan is something that needs to be proven. Moreover, the private sector capital needed to fund these infrastructure improvements will only flow if the overall economy is stable or improving. So Trump’s PPP plan can be a virtuous or a vicious circle.
3) Protectionism and Isolationism Here We Come
TPP is dead. The European Union is hurting. The President Elect is talking about pulling out of NAFTA and slapping major tariffs on Chinese goods. Smarter people than me have written about the benefits of globalization, but that the negatives fall disproportionately on certain demographics. President Trump tapped into this dichotomy and will try to do something about it. I’m skeptical (see #1 above). The jobs of yesterday are gone. We do have an opportunity to win the jobs of tomorrow. Protectionism is going to hurt the global economy and will cause pain in Asia and Europe. The big question is whether or not it will have any tangible benefits for the US and specifically for the forgotten working class. I’m doubtful as this has never worked in the medium or long term for any economy to my knowledge. Helping those who have been left behind get back on the path to the American Dream is great. Protectionism just doesn’t seem fit to the task to achieve it in a meaningful way.
4) The Once and Future Energy Market
I’m a believer in low carbon and zero carbon businesses. This being said, I also have always believed that for any business to be truly sustainable it has to be economical first. The common view is that solar, wind and other technologies will wither under President Trump. I do not believe this – states like California, New York and others will still support renewable power and the economics of these technologies have become cost competitive with coal and natural gas power.
This being said, natural gas will enjoy an expanded role under President Trump. (I’m not convinced that coal will come back – mining costs are not as cheap as they used to be). Expect to see a major push to expand domestic oil and gas production. Fossil energy is going to have a resurgence – but don’t expect renewable power and clean and green businesses to wither away.
5) Tax Reform and Supply Side Economics
President Trump has pledged to simplify the tax code and cut taxes. Most analyses of the plan, whether from the right or the left point to most of the tax benefits accruing to the rich. Trump’s new version of supply side economics or trickle down economics, has been fodder for the left, while the right fondly remember President Reagan and is hopeful. The idea that lower corporate and personal tax rates will cause increased employment and spending and therefore an increase in absolute tax revenues has never been conclusively shown to work. Even under Reagan, most economists agree that increased in defense spending had a strong impact on economic expansion. The key here is job creation. Will corporations and the wealthy respond to having lower taxes by creating more jobs and demand for goods and services in the economy in general? Talk to me in two to three years.