By defying all odds to win the Presidency of the United States, Donald Trump caused a political earthquake of a far greater magnitude than just defeating Secretary Hillary Clinton, who was almost universally favored to win.
What’s more, the so-called negative tailwinds of the “Trump effect” were nowhere to be found: the GOP not only maintained its Senate majority, losing perhaps only two seats among the seven most at risk, but it kept the expected losses of dozens of House seats to a mere five seat net loss, allowing the GOP to hold on to its House majority as well.
The Republican nominee not only edged out his rival in nearly all the key battleground states like North Carolina and Florida, but he even racked up victories in Democratic “Blue Wall” states like Wisconsin and Pennsylvania.
And in doing so, Trump may have achieved a potential tectonic shift in the electoral map of the United States in finally winning over the long-lost industrial heartland of the Midwest. Indeed, this geographic sweep of the upper Midwest is a key takeaway for the markets in reinforcing what we think will be a dominant economic and trade policy priority for the incoming Trump Administration over social issues or even foreign policy in the near term.
Spending and Tax Cut Plans
Against the backdrop of the market’s initial plunge last night by more than 5% and trading limit down as the shock of a Trump Presidency spread around the globe, Trump’s acceptance speech late last night was calculated and deliberate, its tone aimed at allaying the worst fears of policy uncertainty.
It was targeted to first and foremost list plans to build infrastructure, roads, bridges; a long litany of economic stimulus policies, with not even a single mention of immigration – at least not in this initial reconciliation speech to the world.
And while markets are focused on the infrastructure and spending side, at no time has House Speaker Paul Ryan ever been closer to delivering on his long desired corporate tax cut plan than he is now.
Indeed, the Trump campaign, initially made up of all outsiders, struggled mightily at first to put together a tax plan that was credible to economists and public. After a few stabs, from what we understand, the campaign turned to Ryan and borrowed heavily from his template for tax cuts, despite what was at the time bad blood between the two sides.
And Speaker Ryan, after a strong expression of party unity and support for President-elect Trump in remarks this morning, will we think be able to shrug off the challenges that had surfaced in recent weeks to his leadership. And that, in turn, should help Ryan pursue his long held ambitions for comprehensive tax reform.
Focus on Repatriation
And repatriation of what most estimates put at as much as $3 trillion in US corporate profits being held overseas to avoid US tax rates is a key component of Trump’s economic and tax policy plans.
Repatriation has been an “evergreen” in Congress, long popular on both sides of the aisle as a huge revenue raiser, but in fact failing to pass to date due to its very popularity.
There have been disagreements between Democrats and Republicans over the rate at which to tax repatriated funds, and whether and by how much to restrict corporations’ latitude in spending the money repatriated to the United States, for example, in conducting stock buybacks as opposed to creating jobs.
But the real reason it has never passed has been the simple political truth that repatriation has always been held out as a “cookie” to trade for concessions from the other side of the aisle. And that bipartisan agreement has never come, but all that is now within grasp.
Jitters over Trade
While markets will cheer the prospect of both more spending and tax cuts, there is still a good deal of lingering concern over protectionism and Trump’s potential trade policies.
The Trump camp cautions that aggressive trade negotiations are indeed fundamental elements of Trump’s campaign and platform, and as such will not simply disappear for exigency sake.
Rather, they point out that as a businessman it should be no surprise that he would start high with punitive threats of tariff s or penalties – for example as high as at 35% as he has in some speeches for example against the famous Carrier air conditioner company that took its jobs from Indiana to Mexico – but which are no more than starting negotiating positions that could settle at, who knows where, 10% or 15%, depending on the deal.
In other words, don’t get too caught up on those pesky details and numbers. We shall see.