Is Trump's America a Better Investment?

There are pros and cons, but mostly it’s disturbingly difficult to know how much his second presidency will differ from the first?

America’s financial markets warmly welcomed the election of Donald Trump last week.? In part, there’s relief that uncertainty has been lifted, the transition will be peaceful and stock price targets can be notched higher on the prospect of lower taxes and less regulation.? But questions mount rapidly about how he plans to translate campaign promises on tariffs and immigration into actual policy.

Topping the list for investors, at least, is whether a second Trump administration will make the United States more or less attractive as an investment destination.? In a word, I would say “maybe.”? If you give me two words, the answer is “maybe not.”

Separating the president-elect’s policies from his volatile personality, inflammatory rhetoric and disjointed management style is no easy task.? It’s even harder, because many of his ideas on economic policy are vague or contradictory or both.? But let’s squint into next year at the investment case for America Inc. as the old management team returns to the help.? (No, it won’t be anything like Bob Iger and Disney.)

It’s worth dwelling just another moment on the peaceful transition, because it wasn’t necessarily going to turn out this way given all the deep polarization and high emotion.? In fact, the country delivered an unambiguous result that reflects the views of voters who believe the system is rigged against them, their culture is changing too quickly and the price of eggs is unacceptably high.

For all the election drama, however, most of America’s business model seems unlikely to change for now.? U.S. scientists and entrepreneurs still generate most of the world’s best new ideas regardless of who wins elections, while vast capital markets and robust legal institutions consistently produce the most impressive companies of their time from Xerox to General Electric to Google. ??

Those legal institutions bear watching closely given how much Candidate Trump has promised disruption and retribution, but for now investors can still rely on courts and regulators to set the rules with minimal political interference.? Even Jerome Powell seemed to reinforce his Fed’s independence last Thursday with a single-word answer about whether he might be fired by the new president.

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Earnings per share should grow as a Congress that seems likely to be controlled entirely by Republicans not only extends Trump’s 2017 tax cuts but deepens them.? Banks will book higher profits as financial regulations are loosened and capital requirements will fall.? Watering down mandates for climate transition will reduce the costs of almost every business outside the solar and wind industries.

From here, however, the ”buy” case clouds up amid the main elements of Trump’s “America First” program, which feels strange given that we ran the Trump experiment just four years ago.? But there seem to be at least three possible scenarios ahead.

We shouldn’t expect the campaign rhetoric to fade much when Trump returns to the Oval Office, but it’s possible that he delivers relatively mild versions of his tariff and deportation promises.? Tariff hawk Robert Lighthizer may or may not return to his former post as U.S. Trade Representative, but the names dropped for Treasury Secretary are Wall Street titans who might water down any policies that disrupt markets too much.? Meanwhile, the promise to round up and deport 15 million undocumented workers seems too preposterous to contemplate.

But a second scenario must contemplate a much more disciplined Trump team that has long been planning on just how to deliver on his protectionist promises.? If we don’t get 60% tariffs on all Chinese imports and 20% on all other imports from Day One, we may still get levels that haven’t been seen since World War II.? China, Europe and even Mexico would feel compelled to retaliate triggering a chaotic new era for global trade and investment.? Meanwhile, the chilling effect of detaining even a million undocumented immigrants puts anyone without all the right papers in jeopardy of losing their jobs and bids up wages for everyone else.?

A third scenario is some chaotic mix of the first two from a president determined to deliver on some of his trademark promises, but hamstrung by the realities of office: intense lobbying by key interest groups hoping for exemptions, robust retaliation by trading partners who cannot cave without a fight and a Federal Reserve that is likely to pause any prospective rate cuts while it weighs the impact of all this – and a rising deficit - on inflation.?

What may be even more worrying than the size of the tariffs is the vagueness of the goals.? Some of Trump’s advisers want China to stop subsidizing exports and others want to disengage from China altogether.? For Europe, will he press Germany on structural reforms that would make its economy less dependent on exports or just demand more market access for American cars and trucks?

Theoretically, a trade war may hurt America less than its trading partners, because U.S. growth depends much more on internal demand.? Possibly, the threats against trading partners encourage their companies to move their factories and jobs to America.? But this begins to change the country’s business model substantially in a world economy where supply chains remain deeply interdependent.?

Soon enough, the stock market will have to look past the promise of tax cuts and deregulation to assess just how disruptive Team Trump will be in their second term.? The answer is likely to be much more ambiguous.