In election years, it’s common to hear businesspeople talk about political uncertainty acting as a brake on expansion and a stiff headwind. I’m generally a little suspicious of such claims. Entrepreneurs decide whether to open another restaurant, or a furniture store, or a hedge fund, based on whether they see demand or market opportunity – not on who they think might control Congress next year, or whether a presidential candidate might propose raising the tax rate on capital gains.
But this year might actually be different, in large part because presumptive GOP nominee Donald Trump seems to revel in fomenting uncertainty. Trump has consciously set out to violate or alter the norms surrounding political campaigning, and has succeeding (beyond everyone’s wildest expectations) in doing so.
As a result, all of that uncertainty is likely to give pause to a large number of companies and employees in a range of industries. In fact, it’s possible that May’s poor jobs numbers – only 38,000 payroll jobs were added in the month despite the fact that there were a record 5.8 million job openings at the beginning of the month – have something to do with this trepidation. While voters may not head to the polls for another five months, businesspeople have to look farther into the future as they make staffing decisions.
Trump’s election would mark a significant inflection point – in policy, to be sure, but also in temperament and modus operandi. Trump has been more willing than other candidates to pick fights with foes domestic and foreign, and to propose policies that depart from the consensus that has governed his own party and Washington in general.
Relations with Mexico
So, for example, U.S. and Mexico have been considering jointly bidding to host a future World Cup – which would have immense economic and business consequences. But this week, Sunil Gulati, the chairman of the U.S. Soccer Foundation, said there would be great uncertainty surrounding such a bid if Trump, who proposes building a wall between Mexico and the U.S. were to be elected. “I think a cohosted World Cup with Mexico would be trickier if Secretary Clinton isn’t in the White House,” he said.
More broadly, if you’re interested in, say, building a natural gas pipeline from Texas to Mexico, or if you’re one of the hundreds of thousands of people who participate in the $530 billion annual bilateral trade between the two countries, the prospect of something resembling a cold war between the two countries will certainly create some uncertainty.
And then there’s China
In recent years, China-based buyers have emerged as key players in the bidding for the sale of U.S. assets — condominiums, homes, factories, entire businesses. Should president Trump ignite a trade war with one of America’s largest trading partners it could stanch the flow of capital or cause the Chinese government to crack down on outbound investment.
Trump’s pledge on Obamacare
The vast health care sector, which is heavily dependent on direct government spending and the policy that shapes the behavior of insurers and providers, accounts for about 16 percent of the U.S. economy. In the past 12 months, health care has added 487,000 jobs – about 20 percent of the total added.
And the herky-jerky implementation of the Affordable Care Act has had – and continues to have – an immense impact on the industry. For example, in the weeks since Louisiana announced it would expand Medicaid, more than 200,000 people have signed up. If the Affordable Care Act is repealed, or gutted, as Trump and his allies in Congress propose, some 20 million people could lose access to Medicaid, and the business models of countless companies, hospitals, and non-profits would be upended.
If President Clinton were to decide to get tougher on negotiating the price Medicare pays for prescription drugs, that might sow some uncertainty into the process of valuing a start-up biopharmaceutical company.
What about Hillary Clinton?
The long-suffering coal industry may offer some compelling opportunities for investors who specialize in distressed assets. While several leading companies are in bankruptcy, and mines are idled, the immense reserves have a long-term economic value. But if you believe Hillary Clinton may win, not so much.
She conceded that following existing policies “going to put a lot of coal miners and coal companies out of business.” Restructuring and reviving a bankrupt coal mine would be a profoundly bad idea if you believe a Democrat will be in the White House for the next four years, with Sen. Chuck Schumer (D-NY) as Senate majority leaders. By contrast, if there’s a Republican president working with Republican-controlled Congress, in which Sen. Mitch McConnell (R-KY) runs the Senate, picking up coal assets at a discount would be a very smart move indeed. The prospect is. . . . uncertain.
The list goes on: the Keystone Pipeline (thumbs up if Trump wins, thumbs down if Clinton loses); hairspray (ditto); renewable energy (the reverse); pant suits (same).
There’s always a certain level of uncertainty inherent in any investment. In this political season, the level is simply higher.