Companies are reluctant to invest in a world with geopolitical, economic, and regulatory uncertainty. As a result, firms have shown a preference to use the cheap credit made possible by central banks for share buybacks and dividends, rather than capital improvements and research. Consequently, productivity has suffered. Over the last five years annual productivity gains averaged 0.6%, well below trend and the weakest since 1978 to 1982, according to The Wall Street Journal. Wealth creation suffers and living standards deteriorate in an economy that lacks productivity gains, again, contributing to the popularity of Trump and Sanders.
Donald Trump’s ambitious infrastructure spending is expected to add jobs in construction, steel manufacturing, and other sectors. New jobs could contribute towards transportation, water, telecommunications, and energy infrastructure and translate into tax revenues. The National Association of Manufacturers (or NAM) projected that the United States would lose more than 2.5 million jobs by 2025 unless transportation infrastructure were revamped. Trump intends to beef up the Army, Navy, Air Force, and Marine Corps. He wishes to build a missile defense system and accentuate cyber security.
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Trump has promised to bring down the high tax brackets of the working and middle class and ensure fair taxation for corporations.
However, we also realize that Donald Trump’s policies would not have been relevant during the crucial period when Obama assumed the office of President in 2009. Obama’s Dodd-Frank policy was the need of the hour when the country was crippled by the severe recession. Yet Trump believes that banks are overregulated and insists on exercising greater control over the Federal Reserve. That attitude could explain the triumph of financials (XLF) (KRE) (KBE).
Trump’s stand on NAFTA and the Trans-Pacific Partnership could have a big impact on trade with China, Mexico, Brazil, and South Africa. Trump has blamed NAFTA and China for the loss of manufacturing jobs and shut down of factories, respectively. Trump has held China, Mexico, and North Korea responsible for the United States’ burgeoning trade deficits due to rising imports compared to exports. The Trans-Pacific Partnership could further damage US exports, according to Trump.