Outlook for Trump White House

Investors will have to wait and see whether President-elect Donald Trump delivers on campaign promises that range from massive deregulation in the financial sector to trade protectionist actions to make America great again. However certain is that the new administration will emphasize fiscal tools that range from tax cuts to infrastructure spending to stimulate the US economy.

Come January, Trump will deliver to Congress his first budget which is expected to be frontloaded with corporate and high bracket income tax cuts, which are really the handiwork of congressional Republicans, particularly Majority Leader Paul Ryan. Passage is virtually a given under the unified government that will take office on January 20 along with the president-elect.

But easy agreement in Washington may indeed begin and end with this annual budget vote, thereby signaling a volatile political arena and with it uncertain market messages. If Washington gridlock returns (if it ever left), we may see signs of a Faustian bargain Trump strikes with congressional GOP conservatives whose policies he shuns but whose support he needs for political and tactical advantage.

Trump ran as a Republican and continues to refer to himself as a Republican. But his distinctly maverick, hardball, win-at-all-costs style points to a greater inclination for self-interested decision making than a willing embrace of hallmark Republican values – like free markets and avoiding picking economic winners and losers.

If he can gain by putting his thumb on the scale, he may do so. If he decides he can’t win, he could try another tact including pushing the boundaries on acceptable constitutional behavior. Unpredictability in the White House will affect markets. To succeed, Trump is faced with finding ways to bridge any differences with congressional Republicans and at the same time, manage to continue to tie his star to the interests of the constituencies who put him in office in the first place.

He will have some leverage as president but by and large he has to deliver.

His constituencies are America’s working class who said when they handed Trump an Electoral College sweep that they are alienated by status quo, cultural change in America, globalization  and the impact of the pace of technology’s advance in the places where they work. These are the voters who delivered for Trump at a time when LGBT bathrooms were at the center of the American public policy debate.

They can be counted on to take Trump and his White House to task right through the next election, which takes place in 2018. Trump will not be on the ballot in 2018 but his policies and programs will. The election will be a referendum on Trump-style government via the campaigns of politicians who may find Trump has short political coattails.

A lot will depend on how well the economy does in the first 12 month of his presidency. If a boom shows signs of holding and serves to attract more domestic and foreign investment, his coattails could be longer. If not, the Trump plan to rewrite the geography of US economic and social policy could begin to show chinks.

It will be especially interesting to watch how this newly minted political with the much heralded short attention span, maneuvers. Will he tweet his criticism of those politicians running in the bi-election and with whom he disagrees? Will his constituencies continue to listen?

It is difficult to offer truly accurate predictions about outcomes. What we can surmise with some certainty is that he is a politician who is a deal maker. He negotiates hard and doesn’t mind slinging arrows and taking those pointed at him. He also has brought people around him who also like to play hardball and who want to see changes in economics, social and foreign policy and generally how America governs itself.

He will be averse to losing, period. He has signaled that he intends to win at whatever he tries. If events fail to materialize as he intends, he is likely to start tweeting in the wee hours of the night, casting stones at those Republicans he disagrees with; at Democrats whom he considers to be poor losers anyway; a rigged system; and above all, the crooked media.

He will be the first commander in chief to take office without having served in an elected position or in the US Armed Services. By his own account, he does not read books, suggesting that he cares little for historical precedent. AS president-elect, he has chosen to listen selectively to intelligence briefings, preferring to delegate this assumed presidential responsibility to others.

He earned his political chops on the campaign trail. He evinces little interest in the intricacies of a politician’s work and prefers policy decision-making by way of throwing enough pieces on the floor because surely there is a pony somewhere in the mix.

In the early days of the transition period, he advanced his own Trump-like industrial policy with few if any traditional Republican components. He decided that a United Technologies Corp. plant in Indiana, which manufactures air conditioners, could be his first winner in his campaign to create jobs for US workers. With the help of Vice President-elect Mike Pense, governor of Indiana until he takes office on January 20, Trump devised a carrot and stick argument to keep the manufacturer from sending jobs to Mexico.

It was brilliant theater but it also signaled that Trump’s government is not averse to engaging in a protectionist game of picking winners and losers. His message did not stop there. His late-night tweets were also directed at Lockheed Martin over out of control costs to build fighter jets for the US government. His tweets from Trump Tower shaved off four percent of the company’s total value within minutes. Another tweet from Trump Tower landed the president-elect in negotiations with Boeing aircraft over the price of a new Air Force One.

Trump is certainly unconventional. He may very well succeed in spurring innovation, job creation and US economic growth that attracts foreign investment and continues to support an early market rally. It may prove to be bad news for bonds, but Trump’s approach could help the dollar onto solid footing.

Then there are the what ifs. What if the timing is off, and what will be impact on the economy if the Federal Reserve hikes a minimum of three times in 2017 as some are predicting at the same time that China’s economy continues to slow and the European Union faces ongoing political and economic challenges? Can tax cuts and a rewrite of the tax code impact the economy quickly enough -- or will trickle-down effects fall short of the immediate and dramatic growth that’s being called for?

What will be the political fallout as the national debt starts to widen? A unique website, www.USDebtClock.org, which updates in real time, shows that on December 12, the US deficit rang in at nearly $20 trillion. This translates into $61,331 in debt per every US citizen and $166,757 per every US taxpayer.

Foreign holdings of US Treasuries is $6.1 trillion, of which Japan and China are the principal holders. The trade deficit is $730 billion, with just under half attributed to the US/China trade relationship.

There is also the possibility that Trump’s pro-fiscal stimulus plants seeds of a protectionist broadside. Stimulus-spurred growth in 2017 is likely to also benefit two of America’s largest trading partners, Mexico and China, as well as the economies which trade via US- and China-centric supply chains.

If Trump responds as he said he would on the campaign trail, he will pull America back from existing trade treaties and other treaty negotiations, risking blowback for US businesses dependent on providing goods and services abroad.

The times are unpredictable, and the laws of unintended consequences may go either way. Economic recovery in America could improve the 2017 outlook globally. Protectionism could prove to have been a potent gesture but end up being conspicuous in its absence. On the other hand, the promised tax cuts could fail to deliver anticipated outcomes, and the Trump White House decides to hit Mexico and China, America’s two largest trading relationships, with tariffs.

Investors won’t know until the game truly begins on January 20.