The downside of Trump and the business world

 

As the stock market celebrates the potential for massive tax reform, deregulation, and infrastructure spending, I have the urge to remind everyone that not everything about Trump and the economy is a positive. If the goal is to rekindle the “animal spirits” of the business world, there’s a lot about Trump that could hurt the cause. 

Let’s start off with something relatively small, and that’s how he’s intimidating specific companies. He has called out Boeing for the price of Air Force One, and Lockheed Martin for the cost of the F35. First, I think you should give Trump some credit, because the CEO’s of these companies came to Trump like good little puppy dogs and told him they’d cut the price tag. That’s probably a win for US taxpayers. However, from the standpoint of the business world – that’s less profit. The stock market doesn’t like that kind of thing - and it could happen to any business.

Trump has also called out Ford for building parts of cars in Mexico, and he’s gone after Pharmaceutical companies for “getting away with murder.”  If you’re trying to rekindle the animal spirits of the business world, and get them to invest aggressively, it’s probably better to not accuse them of murder.  It’s probably better to not have businesses looking over their shoulder waiting for Trump to clobber them with a midnight tweet. This would be so incredibly obvious to Republicans if it was Bernie Sanders or Hillary Clinton calling out specific companies and telling them how to run their businesses. However, for some strange reason, when Trump does it, Republicans don’t seem to see the downside.   

Another worry for the business world is Trump’s position on global trade. Trump has been saying “buy American and hire American.” That’s a compelling idea - until other countries do the same thing. If Germany only buys from Germany, and China only buys from China, and Japan only buys from Japan – then who’s going to buy American stuff?

To be fair, Americans would still be there to buy American stuff – and we are the world’s greatest consumers. But we make up only 5% of the world’s population. If I’m a business, I want to sell to the other 95% of the world. As it is, nearly 50% of the earnings of S&P 500 companies come from outside America. So, if everyone starts buying more from their own countries, and less from America, we are talking about a lot less revenue for American corporations. Unfortunately, that is exactly the kind of thing that could make our corporations more tentative, conservative, and less willing to invest aggressively – which is precisely the opposite of what we want.    

There’s another important point to make here. One of the main arguments of “buy American, hire American” is to bring back good paying manufacturing jobs to America. But that is a losing battle. American manufacturing hasn’t actually slowed down. According to the BEA, US manufacturing output has grown 42% over the last 20 years. These are literally the glory days of American manufacturing. However, these are not the glory days of American manufacturing employment. Over the last 40 years, manufacturing employment and wages have consistently fallen. 

The major problem isn’t globalization or outsourcing to China and Mexico – it’s improved machinery and technology. I recently toured the Jelly Belly jelly bean factory. And as I saw the incredible machinery, I asked our tour guide how many workers those machines replaced over the years. He didn’t have a specific percentage or number, but his answer was “a lot.” That same story is going on all over America, and all over the world – and it’s only going to get worse. There just aren’t very many good paying manufacturing jobs –anywhere. So, Trump is proposing a big shake-up to the global trading system in a losing effort to bring manufacturing jobs back to America. 

All in all, I think Trump is a positive for the economy, and the stock market, at least over the short term. But there are negatives about Trump too. However, the stock market continues to celebrate like an economic boom is coming. I hope the markets are right. 

Brad Blackburn, CFP®, is the owner of Blackburn Financial, Registered Investment Advisor. Blackburn Financial is located at 121 Cottage Ave, Cashmere. He can be reached at 509-782-2600 or email him at brad@blackburnfinancial.net

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