by David Moon
Candidates for public office regularly discuss and promise things during a campaign that mysteriously disappear after Election Day. As candidates, practically every President and member of Congress promised to “do something about the national debt.” The only thing they’ve done in 56 of the past 60 years is make it larger.
Some of President Trump’s campaign rhetoric will actually occur. Here is my guess at those items.
Candidate Trump regularly criticized the Federal Reserve for low interest rates. President Trump will likely preside over an increase in rates, albeit one that began seven months before he took office. Future criticism of the Fed will be difficult, as within the next 21 months he will have appointed four of the seven Fed governors.
Some business regulations are likely to change. One possible beneficiary of changing regulations could be small and mid-sized community and regional banks. They have been so overwhelmed with mostly irrelevant requirements designed to reign in massive, multi-national banks that one Tennessee community banker described his business as “a compliance shop that occasionally makes a loan.”
A trade war with China would pose much greater economic risks to China than to the U.S. The Fordney-McCumber Tarriff (1922) and the Hoover-Smoot-Hawley Tarriff (1930) exacerbated the 1930s depression, but 2017 is not 1930. Trade wars primarily hurt the exporter much more than they do the importer. Following WWI, the U.S. was the world’s largest net exporter of goods and services.
Today, the U.S. is the world’s largest net importer. A trade war might incite political instability in some countries, but any economic instability it would create would mostly occur in Asia and Europe.
Obamacare will be repealed, replaced, repaired or rebuilt. It will not be retained. An abject failure, the Affordable Care Act has proven to be the perfect example of going quail hunting with an unguided ballistic nuclear missile.
The prices of healthcare stocks have suffered in anticipation of the end of Obamacare. The irony is that those stocks similarly suffered after the election of Barack Obama due to fears Obamacare would become law.
Federal income tax rates will decline, either for businesses, individuals or both. This will have an immediate benefit to our economy. The longer-term economic impact, however, will depend on future budget deficits, including changes in spending.
A decline in illegal immigration from Mexico won’t increase employment, but it will increase employment among legal U.S. residents. It will also decrease profit margins of businesses that currently hire illegals, as the primary reasons for doing so is that undocumented workers are, in many areas of the country, plentiful and inexpensive.
And despite the president’s penchant for tweeting, his 20 million followers are unlikely to help the company. Since the November election Twitter stock has declined 17 percent.
David Moon is president of Moon Capital Management, a Knoxville-based investment management firm. This article originally appeared in the News Sentinel (Knoxville, TN)