WFA Musings - Post Election 2024
While there is a flurry of cabinet appointments to digest and promises from the campaign trail that need to be addressed in the coming months, the issue that I hear most about from our CEO network is “how should we adjust our strategy in a Trumpian world?”
First, and most important to remember, is that the machinery of our Leviathan government grinds slowly and in lieu of an overwhelming mandate from the citizenry, Mr. Trump must prioritize his promises and concentrate on what is probable versus what is fanciful. Notwithstanding a clear victory for the former President over Vice President Harris, the country did not hand him a mandate. Trump won 49.9% of the popular vote to the VP’s 48.4%. He won 31 out of 50 states and 312 out of 538 electoral votes. The last time a President won by more than 53% of the popular vote and over 400 electoral votes was when George H. W. Bush beat Michael Dukakis in 1988. Still, 41 had to contend with a Democratic Senate and House. Recently, Clinton, Obama, Trump, and Biden have all had the luxury of carrying the Senate and House when newly elected only to lose one of the chambers two years later. Bush #43 was the only President since Reagan to win the House and Senate after his first two years in office. I would argue that none of these gentlemen had been given a “mandate,” even though each one claimed that they had done so.
What is true is that Mr. Trump will have a relatively clear path over the next 15 months to get things done by executive order or through Congress. However, if he strays too far into MAGA land, he will find that Senators Mitch McConnell, Susan Collins, Lisa Murkowski, and one other brave sole like Rand Paul, Thom Tillis, Dr. Bill Cassidy, or newly elected John Curtis from Utah might well coalesce into their own force that says, “no, that is simply too radical.” The rejection of Matt Gaetz as Attorney General bodes well in my book. Trump also needs to weigh whether his actions will result in the Democrats wrestling back the House or Senate in 2026, although the latter looks unlikely today.
Second, the most important issue in this election was the state of the economy and inflation. For all of the grandstanding about “fixing” the economy that we heard from Trump and Harris, the body that carries the most weight when it comes to the economy is the Federal Reserve. Fortunately for Mr. Trump, he will assume power in a period of interest rates being lowered and inflation being arrested. However, if he goes overboard on tariffs or tax relief measures, inflation will come roaring back, and the Fed will clamp down by halting if not increasing interest rates. Chairman Powell learned that being slow to the punch in tampering inflation in its early days can be very costly. He will not be caught flat footed again. Consequently, Trump must act carefully in enacting his agenda.
Former Treasury Secretary under Trump Steven Mnuchin, recently said that tariffs will be used as a negotiating tactic versus a permanent revenue raiser. Our view is that Trump should push for a VAT to replace social security taxes and part of corporate income taxes. GATT allows VAT, and all of our major trading partners employ it. Importantly, it is a tax on imports like a tariff but acceptable within the global community, and a rebate on exports. It would boost the dollar, reducing the burden on consumers.
BUT, as I believe we all know, Mr. Trump is not known for either his patience or acceptance of realpolitik.
So, within the above context, what should CEOs prepare for under the new administration?
Regulations will be relaxed across the board. Notwithstanding potential pushback from the automakers and interests of Elon Musk, Trump will open up the market to more hybrids and ICEs. Toyota could become a huge beneficiary. “Drill, baby drill” will become the clarion call within the Energy Department under oil and gas CEO of Liberty Energy, Chris Wright, and Governor Burgum’s leadership of the Department of the Interior. Finally, the Antitrust Division of the Justice Department and the FTC will be told to let acquisitions go forward and only block ones that are patently obvious in running afoul of anti-competitive provisions. The implication for CEOs is to plan for lower energy costs, lower costs of doing business generally and a ripe environment to pursue acquisitions.
The tax regime Trump enacted in his first term will be made permanent or significantly extended and it is possible that he will get his wishes to not tax tips, social security payments, or overtime payments. However, the price tag has been estimated to be $2.4 trillion on a dynamic basis for his plan according to the Tax Foundation’s detailed report. However, they also concluded that the plan would increase GDP by .8% and create close to 600,000 jobs. Their analysis includes Trump’s tariff program. Bottom line, Trump is a supply side hawk, and taxes will not be raised in 2025 when his tax bill coming out of his first term in office expires.
The Southern and Northern borders will be closed to illegal immigrants. Trump’s infamous “remain in Mexico” policy will be revived and applied similarly to Canada. His pronouncement that he will levy a 25% tariff on all goods coming into the USA from our two neighboring countries underscores his commitment to halt the entry of illegal immigrants. Prime Minister Trudeau’s visit to Mar-a-Largo demonstrates a willingness to accede to Trump’s wishes.
“Mass deportation” will be the order of the day but to what extent is the question. Deporting 11 million illegal immigrants would be devastating to the economy and the moral fiber of the country. Deporting the million or so illegal immigrants who have already been designated through legal processes will not undermine the economy and will be widely supported. Bottom line: Trump will not engage in a deportation scheme that hurts the economy.
Trump is very UNLIKELY to end the Ukraine war in 24 hours, but the US holds the cards to broker a deal that is likely to allow Russia to retain the geography it occupied prior to its outrageous invasion in exchange for an ironclad agreement to not invade any NATO country and potentially allowing Ukraine to become part of NATO. The President-Elect was actually very wary of Putin in his first term notwithstanding his claim that “he gets along with everyone.” He did not hesitate to slap a number of sanctions on the country and the oligarchs. A brokered peace will be a boost to the European economy.
Trump will take aim at China and will use the tariff sledgehammer to the hilt. China will chaff but they always play the long game. They know Trump is a lame duck President and Chairman Xi is an autocrat with lifetime appointment. China’s biggest concern will be that Trump’s actions result in greater popularity and that Vice President Vance will continue to make China our number one enemy if he becomes the 48th President. Again, there are limits Trump can go without there being reverberations to our economy, but it is definitely the case that the US can hurt China more than the reverse. US companies must continue to move their China based supply chains to other parts of Asia or India. If China plays its cards correctly, they will find that there is minimal damage to them if they are more conciliatory with the US. Given the current state of the Chinese economy, they would be wise to break bread with Trump.
Iran will find that the 47th President will immediately implement his “maximum pressure” campaign. With Syrian President Assad toppled and Hamas and Hezbollah severely weakened and most of the Middle East aligned with the US and Israel that the Iran theocracy represents the greatest threat to the region, Iran will face a dim future under the auspices of the Trump administration.
Israel will be given the green light to “finish the job” on the condition that it needs to end the war quickly.
The Abraham Accords will extend to Saudi Arabia which only puts further pressure on Iran.
India and many of the South and Central American countries will find a friend in Trump. India in particular will need a harsh lesson in “fair trade.” They currently discriminate against American firms, notably stealing our drug discoveries. Notwithstanding this issue as it relates to India, US companies should think about opportunities to expand into these regions of the world.
For all of the bloviating about Europe, Secretary of State Rubio will ensure that our allies remain our allies. Trump’s threat of a 10% across the board tariff on any imports will garner some concessions but will likely never be implemented.
DOGE will find that cutting $2 trillion of “waste” from the federal budget defies math and common sense. At the end of the day, DOGE will make headlines, and the reality will be they save $250 to $500 billion which is still a big deal.
The single biggest challenge for the 47th President will be his unwavering belief that he knows more than anyone else in the room and according to him, “he is the best President in our nation’s history.” Surrounded by sycophants, he is capable of reaching too far, too fast, and finding that the Leviathan has more lives than him.
I contend that we will know within a quarter after the Inauguration whether we have on our hands a President that shakes things up but in doing so puts us on a trajectory of growth and prosperity much like he did in his first three years of his past presidency OR a bombastic unhinged bully who goes on a retribution tour only to find out that we are a nation of checks and balances. His wings will be summarily clipped if inflation roars back and we become ostracized by our allies and friends. Unfortunately, I think right now there is a 50/50 chance it could go either way which means CEOs should be patient until the fog of the barrage of executive orders, geopolitical events, and legislative actions dissipates, and we all know where we are really headed as a country.
Some precursor indicators will be:
Honors Senate confirmation process and outcomes
Cuts a deal with Canada and Mexico on the flow of illegal immigrants for no 25% tariff
Slims down tax relief promises
Does not allow for January 6th committee members to be investigated by FBI
Brokers a lasting peace between Ukraine, Russia, and NATO
Brokers an Israeli/Hamas cease fire and hostage release agreement if Biden/Blinken fail in their efforts
Deports only criminally charged illegal immigrants
Does not precipitate a government shutdown today!!