Business leaders now realize, if they didn’t already, that they face an unusual problem: deciding how seriously to take what Donald Trump says. The latest evidence came at yesterday’s news conference, when he said pharmaceutical companies are “getting away with murder.” Recall that pharma stocks surged immediately after the election on the assumption that Hillary Clinton had been the anti-drug-company candidate; she had accused the industry of “price gouging” during the campaign, and drug stocks plunged. But now Trump sounds more extreme than Clinton, and those stocks plunged again yesterday. And yet—what, if anything, will he actually do?
The question comes up time and again. The latest economic forecast from Goldman Sachs’s chief economist simply assumes that Trump will not follow through on his protectionist campaign promises; most other major banks assume the same. Yet what if he does? Those promises were central to the success of his campaign, after all. At one point he said he would entirely eliminate the federal debt—not the annual budget deficit, but the whole $13.6 trillion of debt held by the public—in eight years while also cutting taxes and increasing the military budget. It appears absolutely no one believes he could do it or will even try. But what if he does try?
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Business leaders, investors, and others must make these judgments. If you’re in the business of hospitality, construction, or agriculture, you depend on immigrants, many of whom are undocumented. Will Trump order mass deportations immediately upon taking office, as he has said? During the campaign he said of illegal immigrants who had been arrested (not necessarily charged or convicted), “Day one, my first hour in office, those people are gone.” Did he mean it? In a post-election video outlining his priorities for his first hundred days, he didn’t even mention it, suggesting not. But the inauguration is still eight days away; he could change his mind.
Also at his news conference, Trump reiterated that construction of a wall on the Mexican border would begin very soon after inauguration and “Mexico will pay for the wall.” Not up front; the cost “will be reimbursed,” he said. Within hours, Mexican President Peña Nieto said that “of course” Mexico will not pay for any wall. In addition, Trump needs congressional authorization to begin construction, and it’s far from clear he could get it. Yet his statement was ironclad and unhedged. So what do you believe?
When President George H.W. Bush said “Read my lips—no new taxes” and then raised taxes, it was political death. People took his statements seriously. If Trump made a similar pledge, how much weight would you give it?
Expressed in financial terms, business leaders now have a new calculation to perform every day: how much of a discount to apply to Trump’s words.