Trump's economic agenda is stalling

Rick Newman
Senior Columnist

President Donald Trump has made bold-faced headlines with his hotly contested immigration ban and other controversial executive orders. But Trump’s economic plan — which resonated most with voters and arguably won him the election — is fading as a priority amid the usual infighting in Washington.

Trump’s agenda for his first 100 days includes new legislation to cut taxes, repeal and replace the Affordable Care Act and fund a big infrastructure program, plus a reworking of the North American Free Trade Agreement. But all of those plans are hitting hurdles, in Congress and elsewhere, and it could take much longer to enact them than Trump has promised. Some may never go into effect.

Trump has been in office for less than a month, and nobody expected him to pass complicated legislation in a matter of days. But after Trump won last November, stocks surged on the expectation of quick action, especially with regard to tax cuts. Now, as Congressional Republicans try to turn Trump’s campaign promises into actual laws, disagreement among GOP factions and obstruction by Democrats augur a much slower pace of action than markets may have anticipated. Some investors are now lowering their expectations for business-friendly new policies that will goose the economy, and exiting the so-called Trump trade. The promise of tax cuts, friendlier regulation and stimulus spending on infrastructure sent stocks soaring after the election, and if those measures don’t materialize in 2017, markets may give back the gains.

Here’s the outlook for Trump’s four biggest economic initiatives:

Tax cuts

With Republicans controlling the White House and both chambers of Congress, the stars seem to have aligned in favor of tax reform that lowers rates, closes loopholes and makes the US economy more competitive. There’s one pitfall, however: If lost revenue from tax cuts isn’t offset by spending cuts, annual deficits will soar, something Republican budget hawks aren’t willing to allow. One prominent plan would offset lost revenue through new taxes on imports, but that has already triggered opposition from big US companies like Wal-Mart (WMT) and Target (TGT), along with consumer groups that say ordinary Americans will bear the cost of import taxes.

Trump said in a recent interview that tax cuts might pass Congress by the end of the year. But that may be optimistic. “The big story here is the glacial Senate, already bogged down in bitter infighting,” Greg Valliere, chief global strategist for Horizon Investments, wrote recently to clients. “The economic impact of tax reform may not hit until well into 2018.” Tax cuts might also be more modest than Trump would like, if Republicans can’t agree on how to make up for lost revenue.

ACA repeal

Congress has made this a legislative priority, but after six years of trying to kill the ACA, Republicans still haven’t unveiled a plan to replace it. And some key Republicans, such as Senators Orrin Hatch of Utah and Lamar Alexander of Tennessee, now say “repairing” Obamacare, as the ACA is known, might be better than repealing it. Before taking office, Trump said he’d have a replacement plan ready as soon as his nominee for Secretary of Health and Human Services, Tom Price, was confirmed for the job. But now Trump says the “rudiments” of a replacement plan won’t be ready until the end of the year, with legislation unlikely before 2018.

The fate of the ACA probably won’t impact financial markets broadly, but it will directly affect healthcare sectors such as the pharmaceutical industry, hospitals, insurers and medical device makers. There’s also the nagging question of how to provide health care coverage for the 20 million people covered under Obamacare, without costing the government more or forcing more of a financial burden onto patients. If you had to solve this riddle, you’d get bogged down, too.

Infrastructure spending

Trump wants to spend an astounding $1 trillion on new roads, bridges and the like, but his plan would rely primarily on private funding — which would only materialize for projects funded by tolls or other user fees. That’s a non-starter for most roads and bridges. And there’s very little appetite in Congress for spending billions of taxpayer dollars on new projects, which would drive the national debt even higher. A robust infrastructure plan would help economic growth, but this is another policy that’s easy to prescribe and devilishly hard to fulfill.

NAFTA revocation

This is one thing Trump could do relatively quickly, on his own — if he’s willing to risk the possible economic damage. But undoing NAFTA would throw the auto industry into turmoil, while possibly raising the price of cars, appliances, toys, produce and many other things millions of Americans buy every month. Trump says higher prices for imports would eventually create more US manufacturing jobs. But many economists disagree, and even if Trump is right, it would take years for new jobs to arrive. Meanwhile, Trump may be bluffing on his threat to withdraw from NAFTA, as a negotiating tactic. We ought to know within a couple of months, as top trade advisors such as Wilbur Ross, Trump’s nominee for Commerce Secretary, assume their posts and begin to show their hand.

Trump is making better progress on a few more targeted initiatives, most notably his plan to ease restrictions on banks. That has already fueled a pop in financial-industry stocks such as Goldman Sachs (GS) and Morgan Stanley (MS). And Trump has cleared the way for a couple of oil pipelines his predecessor, President Barack Obama, had squashed. When it comes to legislation, though, it turns out even united government can’t escape gridlock. For the overall economy, the Trump bump is still a theory.

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Rick Newman is the author of four books, including Rebounders: How Winners Pivot from Setback to Success. Follow him on Twitter: @rickjnewman.