It was the result that, once again, took the vast majority of pollsters, financial markets and betting markets by surprise. To put into perspective how unexpected Donald Trump’s victory was, the Huffington Post news site spent several months of the election cycle filing Trump stories in their entertainment section. The decisions he makes, the executive orders he signs, the officials he appoints and the Supreme Court Justice he nominates will have definitive implications on international affairs and global business. The impact of a Trump Presidency on the business and finance community could be the most profound, beginning with a potential uproot of the Dodd-Frank Act, in a Presidency that will seek to define itself almost exclusively within the paradigm of US economic growth.
Donald Trump’s flexible approach to policy was the scorn of establishment Republicans during the early stages of the campaign. His lambasting of global free trade and free markets goes against some of the very principles on which the GOP was built. An unpredictable policy standpoint means that Trump lacks the baggage that a traditional politician would bring with them as they enter a new administration. Not rooted by policy platforms developed over several decades or a whole career, and boosted by Republican majorities in the House and Senate, Trump may have the freedom to breach the gridlock that has hamstrung Washington for much of President Obama’s tenure.
A business-minded Cabinet
Two slogans became the foundations on which the Trump campaign was then built – pledges to “Make America great again” and to “Drain the swamp”. In his attempts to do so and drive America towards a target of 4% annual growth, Trump has appointed a series of career businessmen and women to senior Cabinet posts. Cabinet appointments and over 1,000 other senior posts and agency heads will be subject to Senate ratification in 2017, and could begin right after the newly elected 115th Congress convenes on January 3rd but a nominee cannot be confirmed until Trump is sworn in as President on January 20th. The hearing and legislative schedules have not yet been set.
Senate Democrats will be limited in their attempts to frustrate some of Trump’s more controversial appointments, owing to reforms introduced in 2013 by Senator Harry Reid. The “nuclear option” means that a simple majority of 51 votes – which Republicans possess – are needed to confirm appointments, instead of 60.
For the business and finance-facing roles in the Commerce and Treasury departments, Senate Democrats championing the left wing of the party like Senator Bernie Sanders (D-VT) and Elizabeth Warren (D-MA) will use the hearings to continue their war on Wall Street. On that basis, party loyalty and unity across Republicans in the Senate will be crucial to securing confirmations. Having refused to grant a hearing to Judge Merrick Garland, President Obama’s nominee for the vacant Supreme Court seat, Senate Democrats may seek to delay the Cabinet hearings. Given the American obsession with a president’s ‘First 100 days’, frustrating the early days of Trump’s Presidency is a tactic likely to be deployed.
Trumponomics: What does it all mean for business and finance?
The frontloading of financial services titans and career business people in the Cabinet means that the Trump Administration is set to be a far greater friend to Wall Street than President Obama, under whom the banking sector was the most heavily regulated industry alongside healthcare. With only a fleeting regard for climate change, foreign affairs and other outside forces which might otherwise restrict growth, Trump will seek to define his Presidency almost exclusively by growing US GDP towards 4% – Trumponomics: growth at all costs.
Markets had priced in a Clinton victory based on polling indications and fell on the reverse news. Those losses quickly turned into gains, fuelled by the prospect of massive deregulation, the biggest round of tax cuts since the Reagan presidency, billions of dollars in infrastructure spending and a presidential team that “gets” finance and big business. Trump and his team appear to take the view that monetary policy activism should be replaced by fiscal policy activism as the spur for growth. Last week the Fed increased rates by 0.25 percentage points and has indicated willingness to increase rates further if Trump pursues tax cuts and infrastructure spending programme on the basis that such policies could be inflationary.
In the campaign, the Trump transition team pledged to dismantle entirely the Dodd-Frank Act and replace it with thus far unspecified new policies to encourage economic growth and job creation. Republican Chairman of the House Financial Services Committee, Rep. Jeb Hensarling, could shape a post-Dodd Frank regulatory agenda for Wall Street. The Texan Congressman is behind the Choice Act, which calls for scrapping core parts of Dodd-Frank, including a provision that empowers the government to dismantle failed banks. Discussions about Dodd-Frank have extended to a potential abolition of the Volcker Rule, which prohibits banks from proprietary trading, and restricts investment in hedge funds and private equity by commercial banks and their affiliates. Major amendments to Dodd-Frank and the Volcker rule will send shockwaves throughout European banks, who will find themselves at a competitive disadvantage to their American peers. A reduction of the corporate tax rate to 15% will put further pressure on European economies to adapt or lose out in the competitiveness index.
While Trump’s flexible approach to policy is well known and his commitment to financial services reform is not, his stated desire to fuel American growth without distraction will likely mean easing the rules on big and small banks to reduce the regulatory burden.
A sign of things to come?
Before getting the keys to the Oval Office, Donald Trump has already changed the way Presidents communicate with the press and wider world. His Twitter prominence – 17 million followers – already dwarfs that of the official president @POTUS handle – 12.5 million followers – which he will inherit upon inauguration. His 2016 tweet map could give a hint of things to come for his online presence in 2017.
Tweet analysis from Cicero Digital.
Main image: “Donald Trump speaking with supporters at a campaign rally at Fountain Park in Fountain Hills, Arizona” by Gage Skidmore is licensed under CC BY-SA 2.0