Since the presidential election back in November, the most popular question that comes up in our client conversations is "What does President Trump mean for the economy?" While there is not a simple answer to the question, it is possible that “Trumponomics” stands to impact our economy and the business climate, so we have a few thoughts to share.

What is Trumponomics?

We see it as a profound, president-led ideological shift in the political mindset of the Executive Branch of government. President Trump is the first president in many years who is pro-economic growth and appears to be very business friendly. By surrounding himself with other business-minded people instead of career politicians, it is a grand experiment to see if business folks can run government more successfully than career politicians.

Trumponomics has two main tenets potentially worth pursuing to improve the business environment in the U.S.: (1) comprehensive tax reform through deep corporate tax and income tax rate cuts while maintaining current revenue through international tax code changes; and (2) significant regulatory reform.

What are the implications?

If implemented (and that is a big “if”), Trumponomics has the potential to ignite "animal spirits" or the spontaneous optimism among business decision makers to feel more confident about the prevailing business environment. This is a concept John Maynard Keynes, a famous economist, coined back in 1936 about the role of fiscal policy in macroeconomics. Keynesian optimism can ultimately translate into meaningful economic growth through increased productivity and employment.

So far it appears to be working. Not even 60 days into his presidency, the National Federation of Independent Business's Small Business Optimism Index skyrocketed higher after the election:

What are the concerns?

Presidents are often the least powerful individuals when it comes to enacting fiscal policy. The true power lies in Congress. And leading the power rankings, of course, are Speaker of the House Paul Ryan and Senate Majority Leader Mitch McConnell. Given the current makeup of Congress, it really does not matter what Trump or even Ryan want. If legislation cannot get passed through the Senate, where Republicans have only a thin majority, then it will not become law.

Related concerns are timing and scope. Nothing may happen until 2018, and whatever does happen may not be "bigly" as hoped. The President today has limited political capital, with many believing he has not focused, and may not focus, on the stuff that really matters to the economy to get deals through Congress.

Finally, the President seems overly concerned with economically inefficient nationalist and protectionist policies, such as anti-immigration and import trade tariffs, both of which detract from economic efficiency.  

How will it be judged in the long-term?

To ultimately be a success, Trumponomics needs to increase the economic potential of the U.S. economy. Calculated as the sum of the growth rate of productivity (economic output divided by the cost to create the output) and the growth of the working age population in the U.S., the economic potential today is around 2%, the lowest it has been since the 1950s:

Lower taxes and lower regulatory burden may help increase productivity growth, while the import trade tariffs (aka border adjustment taxes) could detract. Immigration is the only way to increase the growth rate of the working age population (unfortunately we cannot make new 24-54 year-olds out of thin air); it follows that deportation of illegal immigrants reduces the labor supply and takes away from economic potential.

The U.S. stock market has rallied since the election and, to some degree, discounted the future benefit already. If Trumponomics does not come through with significant tax and regulatory reform in the future, there is increased risk of a stock market pull back.


This material is for informational purposes only and is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy or investment product.  The opinions expressed do not necessarily reflect those of author and are subject to change without notice.  Past performance is not indicative of future results. Diversification cannot assure profit or guarantee against loss. There is no guarantee that any investment will achieve its objectives, generate positive returns, or avoid losses. Sequoia Financial Advisors, LLC makes no representations or warranties with respect to the accuracy, reliability, or utility of information obtained from third-parties. Certain assumptions may have been made by these sources in compiling such information, and changes to assumptions may have material impact on the information presented in these materials.  Investment advisory services offered through Sequoia Financial Advisors, LLC, an SEC Registered Investment Advisor.

The views expressed represent the opinion of Sequoia Financial Group. The views are subject to change and are not intended as a forecast or guarantee of future results. This material is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment. Stated information is derived from proprietary and nonproprietary sources that have not been independently verified for accuracy or completeness. While Sequoia believes the information to be accurate and reliable, we do not claim or have responsibility for its completeness, accuracy, or reliability. Statements of future expectations, estimates, projections, and other forward-looking statements are based on available information and Sequoia’s view as of the time of these statements. Accordingly, such statements are inherently speculative as they are based on assumptions that may involve known and unknown risks and uncertainties. Actual results, performance or events may differ materially from those expressed or implied in such statements. Investing in equity securities involves risks, including the potential loss of principal. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. Past performance is not an indication of future results. Investment advisory services offered through Sequoia Financial Advisors, LLC, an SEC Registered Investment Advisor. Registration as an investment advisor does not imply a certain level of skill or training.

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Investment advisory services offered through Sequoia Financial Advisors, LLC, an SEC Registered Investment Advisor. Registration as an investment advisor does not imply a certain level of skill or training.

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