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Business Prospects: Promising Outlook from Washington

November 23, 2017

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When asked to sum up Washington’s political climate in 2017, most would respond: “chaotic,” “non-stop,” or even worse, “unpredictable.”

However, for most of the economic issues that CEOs care about, conditions could not be better: reduced regulations, strong investor and consumer confidence, record-high stock market, three percent GDP growth and the prospects of real tax reform. So how should CEOs cut through the news clutter and understand how businesses should navigate Washington in the year ahead?

During President Donald J. Trump’s 2016 campaign, I worked as his Senior Communications Advisor, serving as his primary on-the-record spokesperson and overseeing his communications operation as well as being part of his paid television advertising team, a position I held through the end of the general election before becoming the communications director for the Trump transition team.

During this seven-month stretch I had the opportunity to get to know President Trump beyond simply his writing and speaking styles and his positions on issues. I got to know his leadership style, his approach to dealing with problems large and small, and most important, his vision for America. Much of this would come from traveling with the President during the campaign and, certainly, much of it came from helping to craft messages to the media and the campaign team. The most important insights came from our near-daily 6:30am telephone calls to review the news and discuss the day ahead. During this time, I learned about his passion for the job, his compassion for the people he was elected to serve and his respect for the enormity of the challenges facing both the country and the world.

Engaging Washington

One of the keys to understanding President Trump and how best to interact with him as a CEO is to look back at his career in New York’s real estate development business.

As a developer, President Trump visited construction sites conducting inspections to make sure deals were good ones before entering into them. He also developed his ability to connect with voters. While never a particularly ideological voice, President Trump has championed many of the same policies he has held on taxes and trade since the 1980s. He has always placed a premium on tangible signs of economic growth and success. We see this today in his championing a resurgence of the American manufacturing sector and his pushing for a great American infrastructure program. We see it in his affinity for brick and mortar commerce over e-commerce. We see it in his push to increase American coal jobs, dismissed by many analysts yet viewed in Middle America as a symbol of what made the country great.

It is also important to keep in mind that President Trump built his personal business not by playing the markets (he held comparatively few stocks before selling them in 2016), but by choosing to invest in real estate projects. It is this appreciation for traditional economic development that best explains the direction the White House is going. This has created a tremendous opportunity for both domestic and foreign direct investment in the United States. In stark contrast to traditional Republican political orthodoxy, President Trump has no problem picking winners and losers in our economy as long as it results in new American jobs.

To be clear, if you are a major CEO in the United States or even abroad, and you’re looking to bring jobs and investment to the United States, you have in this president an ally who will go to bat for you to get the deal done. And, as we’ve seen with several companies the President has targeted on his medium of choice (Twitter), he is not afraid to voice displeasure with the flip-side of this, American jobs being moved overseas.

This brings us to one of the most talked about issues of the Trump presidency – negotiations. In real estate development, good deals are negotiated before you enter them. You don’t build two thirds of a high-rise and then establish the terms. However, this is frequently how Washington works, and explains much of the consternation surrounding the Administration’s first policy venture: the failed effort to repeal and replace Obamacare.

Another aspect of President Trump’s negotiating style is his use of the carrot and the stick. President Trump frequently uses the stick – first to influence marketplace behavior, later following up with the carrot when policy has been changed. Examples of this include Air Force One funding, the F-35 Joint Strike Fighter program and even President Trump’s push to get NATO allies to abide by the guideline that member countries spend at least two percent of their GDP on defense programs.

It is also worth pointing out that President Trump is surprisingly pragmatic and not nearly as rigid as one might expect from his campaign trail rhetoric. President Trump is not truly looking to abolish existing trade deals, he’s looking to make them fairer to the American worker. He has indicated that the current DACA (Deferred Action for Childhood Arrivals) immigration policy is unworkable, but has expressed a willingness to sign a fair and humane lasting alternative if Congress can get its act together and send him legislation that makes sense. Recently, to the frustration of Republican politicians on Capitol Hill but to the overwhelming delight of voters from both parties and even the media, President Trump avoided a funding fight in the midst of two major hurricanes by looking to cut a deal with Democratic leaders, Senator Chuck Schumer and Representative Nancy Pelosi.

One aspect of the Trump presidency that I am familiar with due to my work is managing the media narrative. President Trump uses the bully pulpit to go around traditional media outlets to get messages across that news outlets and the politicians on Capitol Hill do not want to talk about. Sometimes, the game plan is obvious. At other times it befuddles the professional pundit class. But President Trump’s supporters love it. The challenge before the Administration now is how best to channel his strengths and communications style as a leader to get tangible results on Capitol Hill before we enter the uncertainty of the 2018 midterm elections.

Presidential Focus

To understand why President Trump is focusing on his current set of priorities, you have to understand the 2016 political climate and the movement that helped elect him. Most elections following eight consecutive years of a single party controlling the White House are considered change elections (1988 being a rare exception). In 2016 not only did President Trump defeat the Democratic political establishment in the general election, but he also defeated the Republican political establishment in the primaries. This anti-Washington sentiment and desire for change was amply demonstrated by the strong challenge of Senator Bernie Sanders (I-VT) to Secretary Hillary Clinton (D-NY) in the Democratic primaries, and helped soften up large numbers of anti- establishment Sanders supporters to join the Trump movement in the general election.

First and foremost, President Trump was able to tap into the “forgotten men and women” he talked about in his Inaugural Address by railing on the insiders from both parties. This made him popular with disaffected voters who self-identified as anti-establishment, conservative Republicans as well as voters simply looking for wholesale change from the status quo.

Second, President Trump elevated issues he felt connected with these “forgotten” voters, from immigration to trade to “draining the swamp,” topics that were of low ranking in the polls before he began to promote them. Trade in particular was an issue that he highlighted, as did Sanders in the Democratic primary. Trump exposed the soft underbelly of both political parties and drove a wedge between what both party elites were championing and the sentiments of what their voters actually believed, namely that decades of trade policies had gutted the middle class, contributed to wage stagnation and put Wall Street ahead of Main Street.

Third, Trump positioned himself as a true independent voice, making it comfortable for traditional Democrats from union households to vote for him. Since the election, he has kept leaders from both parties guessing as to his next moves.

The common banner for trade and these other change policies championed by President Trump has been “America First.” The phrase has never meant America only but more accurately America’s interests first. “America First” in one tight, simplistic phrase, continues to remind millions of American voters of a complex history of trade, immigration, foreign policy and broader economic policies from the previous two decades they felt had impacted them negatively. When the President uses this phrase to talk about his White House policies, it is a not-so-subtle message to the people who voted for him in 2016 that he, the President, has their back.

The Priority List

Tax reform has claimed the pole position for Administration policy importance as we enter 2018, and the President’s plan has four primary pillars:

  • Create more jobs by lowering the corporate and small business tax rates. The President has previously stated a desire to lower this figure to 15%, though most Administration sources say the likely eventual target range is somewhere in the 22%-25% range.
  • Put more money in the pocket of the middle class by lowering marginal tax rates. Initial trial balloons have suggested a condensed, three-bracket approach of 15%, 25% and 35%, though the only major reduction is likely to be for the middle class, and the top bracket is unlikely to see any decrease at all.
  • Simplify the tax code by closing loopholes for the state and local tax exemptions, and also potentially targeting Wall Street, which could mean doing something about carried interest (among other targets) to free up more revenues for the desired corporate and marginal tax cuts.
  • Bring American monies back from overseas through a tax repatriation holiday. Initially desired at the 10% rate, there could end up being two different tax brackets here as the Administration works with Capitol Hill to finalize this legislation.

Burdensome regulations received steady attention on the campaign trail and in 2017. President Trump now requires two regulations to be eliminated for every new regulation that is created. Reducing regulations will continue to be a prime mover for the administration in 2018.

Infrastructure renewal, a favorite of the 2016 campaign trail, will be addressed in a major infrastructure reform bill in 2018. Some $200 billion in federal revenues would amplify an additional $800 billion coming from private sector investment and new sources of local and state revenue over the course of a decade. While basic roads and bridge projects will play an important role, look also for President Trump to consider funding several “legacy projects” as part of this bigger push.

Trade policy will focus on bilateral negotiations and renegotiations, and also will be linked to security issues in a way not seen in the modern era. As for NAFTA, if the president cannot extract the policy changes he is looking for, it is not outside the realm of possibility that the President removes the United States from this trade deal and instead negotiates independent one-on-one deals with Canada and Mexico.

Immigration is perhaps the stickiest of President Trump’s policy initiatives. From the travel ban to the southern border wall to revamping the H-1B visa program to the DACA program, look for Administration objectives to be heavily influenced by the American court system and the contemporary makeup of the West Wing staff. This doesn’t mean the president will always be swayed from his original positions, as he takes his campaign promises seriously, but this is one policy area where we’ve seen a significant amount of flexibility. Rhetoric on this issue and the willingness to enforce existing immigration laws has led to a 40% decrease in arrests at our southern border in 2017.

Defeating ISIS remains an urgent objective as jihadism attacks are being dispersed since the near-destruction of the Islamic States in Iraq and Syria. Extremism clearly remains a threat to our allies in Europe and the UK. ISIS forces are increasing their presence in Afghanistan, which helps explain President Trump’s announced troop increase for Afghanistan.

Looking Ahead

As we approach 2018, look for the following as the Administration focuses on its priority issues:

  • President Trump passes tax cuts in early Q1 and then sees significant administration turnover as many senior officials resume their careers in the private sector financial marketplace.
  • Capitol Hill will likely be unable to come to a consensus on DACA immigration reform and the issue is effectively delayed until 2019, causing immigration to become a major flashpoint in the 2018 mid-term elections.
  • As we enter the next election cycle, watch for Republicans to lose a large number of Congressional seats and barely maintain control of the House in the midterms, but due to a unique celestial electoral alignment, they are likely to gain three to five seats in the U.S. Senate.
  • Iran replaces North Korea as the premier existential foreign policy threat to American security and stability.

Needless to say, it is extremely difficult to make any predictions about what will come next in Washington. CEOs and senior executives should know the Administration will remain focused on these core issue areas and that they should leverage every opportunity possible for engagement. Despite what seems like volatility, there are also incredible opportunities.

The views and opinions in these articles are solely of the authors and do not necessarily reflect those of Teneo. They are offered to stimulate thought and discussion and not as legal, financial, accounting, tax or other professional advice or counsel.

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