A business perspective on President Trump's first State of the Union

Capital building with flagA little more than a year after taking office, President Donald Trump took to the rostrum in the House Chamber Jan. 30 to deliver his first State of the Union Address. In this edition of the Washington Update, Grant Thornton's Public Policy group and select industry leaders offer insights on how the president's agenda will affect Grant Thornton and the relevant market sectors we serve.

Overall policy outlook Mary Moore Hamrick, national managing principal, Public Policy:
"President Trump was elected as a businessman, so it seems fitting to sum up the challenge he now faces in business terms - brand, inventory, sales, and contract bid.

"Brand: In his 80-minute address, Trump sought to burnish his "brand" by highlighting his administration's accomplishments, including regulatory relief, judicial appointments, and tax cuts. He emphasized an American economic resurgence, surging stock markets and falling unemployment. The president proposed an exhaustive agenda, with a focus on infrastructure, immigration and defense. Trump challenged Congress to unite, seek common ground, and encouraged bipartisanship for the benefit of all Americans.

"However, Trump's challenger brand has proven controversial. His style is viewed as divisive and his oratory as heavy-handed by many Democrats. At a post State of the Union press conference, House Democratic leaders sought to establish their own "brand" - separate and distinct from the president and Republicans, pushing back on many of his proposals.

"Inventory/sales: Trump witnessed firsthand how difficult it is to "move inventory" — shepherd legislation through the House and especially the Senate. Congressional leadership's year-long efforts to pass health care reform in 2017 did not result in a bill of sale. Ultimately, Republicans united behind a tax reform package that passed with the bare minimum of 51 Senate votes necessary and without one Democratic vote in either the House or the Senate.

"This year, President Trump must "sell" or garner 60 Senate votes in order to move out any of the legislative initiatives he proposed in the State of the Union Address. The breadth of infrastructure and immigration issues don't meet the policy restraints imposed by the Senate rules, rendering budget reconciliation (requiring only 51 votes) ineffective as a path forward. Simply put, Trump's going to have to do this the old-fashioned way - keeping his party in line (51 Republicans), while reaching across the aisle (nine or more Democrats), to be successful in the Senate.

"Contract bid: Every two years, the House and one third of the Senate "contracts," their terms, come up for bid with the American voting public. While Trump won't be on the ballot this year, midterms are often a referendum of the president. Trump's brand will be a major factor as voters decide who controls the levers of the 116th Congress. And it will largely depend on Trump's ability to sell Democrats on his policy "product" and move inventory before election-year stagnation sets in around Memorial Day.

Working with this definition of Trump's brand, some of Grant Thornton's top advisors discuss how the concepts delineated above could impact various industries in the next year.

"Trump's brand, sales ability to move inventory, and the Republicans' ability to renew their majority contract is precisely what voters will grade them on when the electorate head to the polls."

- Mary Moore Hamrick, national managing principal, Public Policy
"Americans want change. They want leaders who will get Washington working for them again, leaders who will end the backlog of common-sense legislation that can get our nation roaring again, but Washington has been stymied by partisan gridlock which is only getting worse. We can only hope that Republicans and Democrats alike put the voter's interests ahead of their own.

"Trump's brand, sales ability to move inventory, and the Republicans' ability to renew their majority contract is precisely what voters will grade them on when the electorate head to the polls."

Construction and real estate Greg Ross, national managing partner, Construction, Real Estate, Hospitality and Restaurants

"The construction and real estate outlook is expected to remain positive in 2018. While the macroeconomics of low unemployment and interest rates are strong indicators of performance, the president mentioned many areas that will have direct impact in our industry. Tax reform, immigration policies, health care reform, among others, are all factors when projecting an outlook for construction spending, real estate development and general real estate values.

"The president called for a bill that would invest $1.5 trillion in infrastructure "asking both parties to come together to give us the safe, fast, reliable, and modern infrastructure our economy needs and our people deserve." If passed, the impact would have a trickle-down effect on the economy that will spawn both public and private partnerships creating jobs and economic growth.

"We expect to see consistent growth, continued increase in employment, strong demand for market diversification and an overall increase in real estate values. The continued strengthening of the global economy along with the tax reform changes will bring with it — strong steady growth."

Consumer and industrial products Jeff French, national managing partner, Consumer and Industrial Products

"The president touched on several policy areas that can have a direct impact on the consumer and industrial products industry, including infrastructure, immigration, worker training and trade.

"While there are obviously a lot of details to be worked out, including how to pay for it, his call for $1.5 trillion investment in infrastructure has broad support among manufacturers. Consumer and industrial product companies and the transportation companies that move their products would like to see investment that improves supply chain efficiency, and speed to market. It's hard to see how the president's proposed requirement streamlining the permitting processes to two years or less can be accomplished - permitting can involve local, state, federal and various agency regulations. But this would be a welcome ideal for consumer and industrial product companies.

"Permanent residence and a 12-year path to citizenship for immigrant children currently in the U.S. would be a welcome policy for consumer and industrial product companies who are already experiencing significant labor shortages and could not bear to lose current workers. The president also proposed a merit-based system to future immigration. Such a system would be favorable to companies looking for highly skilled workers like engineers, skilled machinists, and software engineers. However, merit standards that are extremely high could inhibit the number of lesser skilled workers needed to meet some jobs that U.S. workers don't fill, such as in meat packing and agriculture.

"Additionally, the president called for increased workforce training and the creation of more "great vocational schools." Consumer and industrial product companies are very supportive of this, but they would also like to ensure that technical colleges are instituting degrees and curriculum that train people for the positions they need.

"The president reiterated his vow to "fix bad trade deals." With NAFTA currently in negotiations, manufacturers are cautiously optimistic that it will produce favorable outcomes, but as Grant Thornton recently shared on a NAFTA webcast we hosted, they are concerned about impacts to supply chains, changes to provisions covering rules of origin, tariff increases, customs and border inefficiencies and more. It's somewhat subtle, but President Trump understands the U.S. is currently the world's largest market, and he believes we have leverage to make other countries improve their reciprocal trade with the U.S. The threat of limiting or preventing imports to the U.S. in exchange for better access of U.S. products in foreign markets is a strong one. How far he can and will push without starting all-out trade wars is very uncertain.

"When he speaks about trade the context sounds very bilateral and not multi-lateral. This could delay negotiating deals and have unintended consequences. Focusing on the biggest trade deficits would seem to make sense, but it feels as though he is willing to attack many fronts at once. Perhaps he's hoping the rhetoric and several tariff actions here and there will entice foreign countries to change their behavior with limited negotiation."

Energy Kevin Schroeder, national managing partner, Energy

"The American energy industry is clearly viewed in the president's speech as a driver of growth in the United States and a major player in the world economy. With the expansion of capacity in oil, gas and coal, the energy industry will be well-prepared to serve American needs and will be an important supplier to the planned restoration and improvement of our country's infrastructure, transportation and manufacturing operations."

Health care and life sciences George Serafin, national managing principal, Health Care and Life Sciences Practice

"Health care and life sciences is still a priority for the president. In his state of the Union address he counted the elimination of the individual mandate, passing the VA Accountability Act, and having the FDA approve a record number of drugs and medical devices as some of his key achievements. In a potential precursor to things we may see this year, President Trump said, 'One of my greatest priorities is to reduce the price of prescription drugs. In many other countries, these drugs cost far less than what we pay in the United States. That is why I have directed my administration to make fixing the injustice of high drug prices one of our top priorities. Prices will come down.'

"Given the president's overall agenda we do not see any slowing down of market forces creating disruption and change to the health care and life sciences industry. The proposed merger of CVS/Aetna and the recent announcement of a joint venture between Amazon, Berkshire Hathaway and JPMorgan Chase focused on reducing health care costs are good examples of these types of changes."

Private equity Sal Fira, practice leader, Private Equity

"For the private equity community, enactment of the tax reform bill represents significant change. President Trump noted the impact on all businesses in his State of the Union Address. We see broad impact not only for PE funds and the way in which they structure transactions but also for the companies in their portfolios. Another very important area for private equity investors is infrastructure. While President Trump noted that some funding will come from the government, most will be from the private sector, including private equity."

Technology Steve Perkins, national managing director, Technology Industry Practice

"While the president did not single out the technology industry specifically, he did address tax reform, job training, and infrastructure, all of which will have a significant impact on technology companies.

"The U.S. technology economy will be among the largest beneficiary of repatriation provisions in the recent tax reform. The large influx of overseas cash will fuel increased research and development, mergers and acquisitions and creation of new U.S.-based technology jobs.

"The tech industry employs more than 7 million people in the United States and is expanding as U.S. tech companies expand, and technology permeates all facets of business. Job training must focus on providing the training and retraining to ensure we remain competitive and offer real, transformational opportunities to the U.S. worker.

"Information technology is a core foundation component that underpins 21st century U.S. economic and social activity. As such, Infrastructure spending should extend beyond physical infrastructure to digital infrastructure, investing in extending areas such broadband, wireless and data centers."

Mary Moore Hamrick
Mary Moore Hamrick
National Managing Principal, Public Policy
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