Trump tweets cause jitters, but businesses see good deals on horizon

Thursday, December 8th 2016

Boeing and other defense contractors saw their stock prices retreat after President-elect Donald Trump named and shamed aerospace giant, on Twitter. The biotech and pharmaceutical sector took a tumble after Trump vowed to bring down drug prices in a TIME Magazine interview. Yet, in both cases, within 24 hours the stocks had stabilized and went on to post slight gains.

Moreover, the overwhelming trend across the major U.S. stock indexes shows that Nov. 9 was take-off point, what some have called the Trump rally.

In spite of Trump’s early morning Twitter-storms startling investors with talk of canceling contracts, or slapping hefty tariffs on companies moving jobs overseas, by the end of trading, Trump’s comments have been met with a net-positive response, even for companies that have been Tweet-shamed. The president-elect may be teaching a political life lesson about the birds and the bulls.

“The markets are responding positively because they understand that Trump is a business guy, and that ultimately at the end of the day he is going to make business decisions…and reforms that actually help businesses,” Rep. Mark Meadows (R-N.C.) said on Thursday.

Meadows is a former small business owner who was recently selected to head the House Freedom Caucus. He acknowledged that some of Trump’s statements, like the tweet threatening to cancel the Boeing Air Force One contract, certainly have immediate political consequences that can provoke a reaction from the markets, but they adjust to the temporary shock.

“The immediate political backdrop may suggest a negative consequence,” Meadows said of Trump’s tough talk on corporations. “But long-term if you apply business principles to the decisions here on Capitol Hill, the return is normally one that will benefit the American people.”

One week ago, Donald Trump fulfilled his first campaign promise and cut a deal with the U.S. manufacturer, Carrier Corp. After negotiating with the president-elect and Vice President-elect Mike Pence, Carrier agreed to keep 1,000 jobs in Indiana, which had been slated to be sent to Mexico. In exchange, Carrier got a $7 million tax credit over the next years and stayed in the good graces of the incoming administration.

Like many of his other plans, Trump announced the deal with Carrier via Twitter, in a series of late-November tweets saying he was working with the company’s executives to get a “great deal” for American workers.

By Dec. 4, he was rattling corporate America with a series of tweets warning U.S. companies that if they wanted to build their products overseas, but sell their “product, cars, A.C. units etc., back across the border,” they would face a 35 percent tariff. “Please be forewarned prior to making a very…expensive mistake!” Trump warned.

Two days later, he tweet-shamed Boeing for cost-overruns associated with its Air Force One replacement jet. While Trump may have fudged the actual projected costs of the new presidential 747, his 137-character message made waves.

President of the Alliance for American Manufacturing, Scott Paul, joked that it is not practical to think Trump will “tweet every manufacturing job back to the United States.” But there is a possibility that Trump’s tweet-shaming will resonate in boardrooms.

“I think the possibility of being shamed on Twitter has to now factor into corporate America’s decision making, rightly or wrongly,” Paul said.

It is not yet clear whether Trump’s public comments will actually change the minds of CEOs planning to move jobs overseas, but Paul noted that the companies Trump has called out are very large corporations that “care a lot about their public image, that sell products to consumers, or rely upon the good will of taxpayers and others to flourish.”

The response from investors to the election of Donald Trump is undeniable and demonstrated with almost daily record highs on Wall Street. And lawmakers on both the left and the right see businesses responding well in anticipation of big incentives and tax breaks they may receive from the president-elect. But for Progressive Caucus leader, Rep. Keith Ellison (D-Minn.), those gains for companies like Carrier, will come at the expense of the American people.

“What [Trump] is doing on a case by case basis isn’t going to mean anything for working people,” Ellison charged, saying the Carrier deal is “full of holes.” Ellison continued that Trump’s high-profile deals and tweets “will give him some PR to make him look like a working class hero, but it will not be good policy over time.”

According to a recent Politico/Morning Consult poll, more than half of voters think it is perfectly fine for the president and vice president to negotiate with “individual private companies on a case by case basis.” Overall, 60 percent of voters polled thought Trump’s negotiation with Carrier to save 1,000 jobs was a good deal.

In his Person of the Year interview with Time Magazine released on Wednesday, Donald Trump indicated that he is willing to go to extraordinary lengths, pressuring companies on a case by case basis, to fulfill his campaign pledge of keeping jobs in America. Turning to his soon-to-be chief of staff, Reince Priebus, he said, “Hey, Reince, I want to get a list of companies that have announced they’re leaving…I can call them myself. Five minutes apiece. They won’t be leaving. O.K.?”

According to Paul, if Trump follows through on his promise to call each and every individual company that is threatening to offshore production, “that would obviously reflect a considerable change” from past approaches.

When President Barack Obama took office at the height of the recession, American jobs were being lost at a rate of 700,000 per month. The auto sector had been decimated, losing more than 300,000 workers from 2007 to 2009, and both General Motors and Chrysler were bankrupt. In his first month in office, Obama met with CEO of the construction giant Caterpillar, to try to stop further construction layoffs. The month after that, he announced the government takeover of Chrysler and GM, and the start of an $80 billion auto bailout.

At the time, Obama’s critics accused him of choosing winners and losers, distorting the free-market, and even called him a socialist. Now, as Trump selects companies, like Carrier, for multi-million dollar tax breaks, and threatens others, like Ford Motors and Rexnor, with heavy tariffs. He too is being accused of crony capitalism, choosing winners and losers.

“Folks have selective memories about this,” Paul commented, explaining that while some “economic purists” oppose any kind of government intervention in the private sector, throughout American history presidents have regularly stepped in to help certain sectors of the economy, or particular firms.

President George W. Bush imposed tariffs on steel to shore up American production in 2002. In 1983, Ronald Reagan imposed tremendously stiff tariffs on imported heavy motorcycles to save a single company: Harley Davidson. And in the wake of the Great Depression, President Franklin D. Roosevelt launched the New Deal, an alphabet soup of federal programs to directly stimulate American business and manufacturing. The practice has run its course through Republican and Democratic administrations alike.

Many experts have explained the positive market response to Trump by citing the president-elect’s plans to slash regulatory red tape, reform America’s tax code, and provide other incentives.

Trump’s campaign promise to cut corporate tax rates has many corporations anxiously awaiting January 20, with some small businesses eyeing potential benefits if Trump works with Republicans in Congress to repeal parts of Obamacare. Energy companies have also reacted positively to Trump’s promise to “unleash” American fossil fuel production, by slashing environmental regulations, a very real possibility if Scott Pruitt is confirmed to head the Environmental Protection Agency.

Rep. Ellison agrees that corporate America’s support for Trump is the consequence of the candidate’s promise of massive tax cuts and deregulation, but he sees that enthusiasm being driven by the belief that “this will be a day when the rich and the powerful will profit.”

“One thing is clear,” Ellison stated, “Donald Trump is trying to monetize the presidency.”

Rep. Meadows argued the opposite, that even though he has made billions as a businessman, Trump will not use the White House to enrich himself or a small group of cronies. “He wants one group of people to be winners, and that’s the American worker. And if that means making a statement that sends shock-waves through the political norms, so be it.”

 

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