Election 2016: President Trump’s Potential Impact on Business

November 10, 2016

Now that U.S. President-Elect Donald J. Trump has secured victory and Republicans retained control of Congress, it’s time to take a serious look at the Republican Party platform and its potential impact on business. 

Although markets may be volatile in the immediate aftermath of the election, the longer-term impact depends on which policies are actually implemented through legislative action. A Trump victory combined with Republican control of Congress could open the door to implementing at least some of the platform, which generally calls for less government spending and regulation and lower taxes — we see the below bullets as the likely impacts on various issues and industries important to our clients: 

  • M&A 
    • Stimulus: A lower corporate tax environment and more opportunity for the efficient deployment of overseas cash, combined with broad deregulation, would probably spur deal making activity in general. However, a lot will depend on the industry. Another wild card is whether Mr. Trump’s leadership style will, as critics contend, have a destabilizing effect, which may dampen corporate risk taking. 
    • Antitrust: Mr. Trump’s pronouncements on the AT&T/Time Warner deal, as well as on Jeff Bezos’s ownership of The Washington Post, suggest a vigorous approach to antitrust in the media context. Similarly, statements with regard to healthcare reform suggest an interest in enhancing competition in that sector of the economy. While he has a penchant for deal making (which would seem to make him more ideologically predisposed to be merger friendly), that could be offset by the working class populism ideology (which might emphasize jobs and income inequality concerns over economic efficiency). 
  • Taxes 
    • Lower business taxes: We can expect an effort to lower the corporate tax rate to be on par with, or below, other industrial nations and perhaps a switch to a territorial system so profits earned and taxed abroad are more likely to be repatriated. The Trump plan calls for a corporate tax rate of 15%, elimination of the corporate alternative minimum tax and a deemed repatriation of corporate profits held offshore at a one-time tax rate of 10%. The Trump plan also calls for special deductions for firms engaged in manufacturing in the U.S. 
    • Carried interest: Although the Trump plan calls for taxing carried interest as ordinary income and he and his party both call for an end to “special interest loopholes,” we think current carried interest treatment is likely to remain largely intact in a Republican Congress. 
  • Trade 
    • Pro international trade: Although Mr. Trump is in favor of a reset on both the Trans-Pacific Partnership (TPP) and the North American Free Trade Agreement (NAFTA), he and the party are in favor of multilateral agreements with other open market nations. However, support for the Export-Import Bank is unclear. 
    • China: Both the party and its presidential nominee are in favor of going after China for currency manipulation, exclusion of U.S. products from government purchases and subsidization of Chinese companies. Mr. Trump threatened during the campaign to impose significant tariffs on imports into the United States of Chinese goods; if this occurs, China might be expected to retaliate, damaging the prospects of U.S. firms selling into China. 
    • Sanctions: Significant changes to various U.S. sanctions programs are likely to occur in the near future. As many recent changes under the Obama Administration were accomplished through executive action (instead of congressional action), Mr. Trump will have significant authority to reshape U.S. sanctions restrictions immediately upon assuming office. Specifically, Mr. Trump has indicated that he would consider recognizing Crimea as territory of Russia and lifting some or all of the related sanctions measures imposed against Russian and Ukrainian persons, and he has expressed a willingness to reimpose U.S. primary and secondary sanctions measures against Iran that have been eased over the past year pursuant to the Joint Comprehensive Plan of Action (JCPOA). Trump’s views on U.S. sanctions regarding Cuba have been mixed, and it is possible that he may seek to revoke executive actions by the Obama Administration that eased restrictions regarding Cuba. 
  • Finance and Real Estate 
    • Deregulation: The republican platform includes a promise to repeal Dodd-Frank and reform the Consumer Financial Protection Bureau (CFPB); however wholesale changes to Dodd-Frank is far from certain. The Trump administration’s focus is likely to be on scaling back the regulatory burdens on small community banks. Populist fury at Wall Street may make major changes supported by money-centered banks and international banks impractical. 
    • Banking: The Republican platform called for deregulation generally but also called for the reintroduction of Glass-Steagall. We see a focus on the community banking sector. While we anticipate the pace of further regulatory change to diminish, any major rollback of the existing regulatory framework around banking will be difficult. 
    • Real Estate: We see an environment that is less supportive of the government’s role in housing as the platform calls for reforming Fannie Mae, Freddie Mac and the Federal Housing Administration (FHA) and ending quotas. However, support for the government-sponsored enterprise (GSE) model is substantial and crosses party lines and real change to diminish the footprint of the GSE may be impractical. 
  • Energy 
    • Deregulation: We expect an end to regulatory constraints on supply, which may lead to lower energy prices in the absence of market discipline. The party is in favor of more access to public lands and the outer continental shelf for production activity, faster federal permitting for wells, nuclear and hydroelectric projects, mineral production and energy export terminals and an end to regulation that favors renewables over fossil fuels. Republicans reject the Kyoto Protocol and Paris Agreement, and would eliminate recent environmental regulations, including under the Clean Water Act (CWA), move to shift environmental regulation to the states and create an independent, bi-partisan Environmental Protection Agency (EPA). 
    • Clean energy: The party is in favor of permitting the Keystone XL pipeline, coal extraction and hydraulic fracturing and would look to end clean energy subsidies and the Department of Defense (DOD) mandate on renewables. However, the platform does call for encouraging investment in new energy storage technology. 
  • Healthcare 
    • Obamacare: It strongly appears that Republicans will seek to repeal the Affordable Care Act (Obamacare) and replace it with more private options for those that can afford health care and state block grants, and subsidies for those who cannot. The president-elect made the repeal of Obamacare one of the centerpieces of his messaging over the last weeks of the campaign, and the Republican Congress has consistently passed repeal legislation, which, with a Democrat in the White House, has had no chance of proceeding. It now seems likely that the Republicans, with the White House and both houses of Congress, will move to dismantle much or all of Obamacare. A possible result could be to implement a replacement program that would encourage competition across state lines, health savings accounts and purchasing pools. 
    • Insurers: The platform calls for a repeal of the McCarran-Ferguson Act (MFA), which currently protects insurance companies from federal antitrust laws. 
    • Medicare: The party is in favor of phasing in an increase to the starting age for coverage and allowing those under 55 the option of a premium-support model. 
    • Pharma: The party would like to reign in Food and Drug Administration (FDA) regulation and promote the development of new devices, drugs and biologics. However, stem cell research could be in peril as the party would like to eliminate federal funding for embryonic stem cell research. 
  • Other 
    • Regulation of Institutions and Advisers as Fiduciaries: The Department of Labor (DOL) recently issued the highly controversial "investment advice" regulation under Employee Retirement Income Security Act's (ERISA's) fiduciary rules, which dramatically extends the reach of fiduciary regulation to broker-dealers, nondiscretionary consultants and advisers and a host of other financial professionals and institutions. It is reasonable to wonder whether the Trump administration will move to revoke this initiative altogether. 
    • Technology: The platform calls for “balanced” protections for intellectual property and more vigorous enforcement of intellectual property laws against overseas infringers. There is also support for pushing broadband into rural areas, which may help purveyors of digital content and services expand their market reach. On the other hand, the party’s stance against net neutrality regulation may help broadband providers at the expense of content providers. 
    • Defense: One of the few areas where Republicans would like to spend more money is defense. They would like to increase the number of troops and troop readiness and maintain superiority, particularly in space- and cyber-based offensive and defensive capability. 
    • Infrastructure: The party is generally in favor of public-private partnerships for infrastructure spending, rather than relying on federal funds, and would seek to limit federal funding for mass transit and other projects primarily benefiting cities. The party is in favor of spending to bolster the electric grid. 
    • Agriculture: Though we see ambivalence on farm subsidies, Republicans are supportive of agriculture exporters, including exports of genetically modified organisms (GMOs). They are also in favor of a reduction in food safety and labeling regulation. 
    • Labor: The platform calls for Right to Work laws and less labor regulation. The stance on visas for foreign workers, of particular importance to our clients in heavy science and technology industries, is clouded by the broader immigration debate and the mantra that American jobs must be protected from foreign encroachment. Employee stock ownership may see a boost as the party is in favor of these types of plans. 
    • Cybersecurity and Data Privacy: Mr. Trump has made it clear that he views foreign governments and criminal organizations as far more willing to launch cyber attacks than the U.S. It seems likely that the new administration will view America's cyber-readiness as a key component of national security, and that the technology developments from private industry will be an important part of America's defensive and offensive use of cyber to protect U.S. interests. Data flows between the U.S. and foreign countries could become more difficult if the U.S. is viewed, fairly or not, as unwilling to adhere to multi-national agreements such as the recently enacted Privacy Shield.

Subscribe to Dechert Updates