President Trump’s speech to Congress (the de facto State of the Union) is being rightly praised by critics for its politically effective pivot in both tone and demeanor. Even critics on the left are either conceding it was a well-executed speech or stretching awkwardly to find points of critique. Fox News’s Chris Wallace spoke for many viewers when he said, “I feel like tonight Donald Trump became the president of the United States.” The positive response to the speech is well-deserved if one believes Trump needed to show empathy, demonstrate a presidential demeanor, and employ a new, more sober style of communication.
Fiscal conservatives like me are wise to be skeptical when they hear the words “trillion-dollar infrastructure,” no matter who is uttering them. Last night, President Trump reiterated his desire for a (hopefully) pro-growth infrastructure stimulus, but in doing so he laid out two caveats that the market must pay attention to: (1) He said “a trillion dollars’ worth” of infrastructure, potentially leaving the door open to a plan that costs the government less than its sticker price; and (2) He specifically said the package’s cost would be split between public and private entities, meaning, again, that the presumed government expenditure will be something less than $1 trillion. (Somehow I doubt he meant to imply that 99 percent of the plan would be financed by private funds, but I can hope.) The devil will be in the details, and politically speaking, Trump’s approach does have extreme potential for crony capitalism. But it sounds as if the deficit-busting, interest-rate-hiking, FDR-style spending many have feared may not be exactly what the administration is aiming for.
Trump’s transportation secretary, Elaine Chao, said in a post-speech interview that the administration hopes to invest not just in “public works” projects such as bridges, tunnels, and roads, but also in energy, broadband, and power infrastructure. This is in direct contrast to the non-shovel-ready Obama stimulus of 2009, which was a gigantic windfall for various staunchly Democratic unions but included no thoughtful pro-growth investment.
There is more clarity around Trump’s plans for energy-infrastructure investment than around anything else, and those plans are thus far entirely focused on the private sector. Therein lies not only an investible thesis but also an encouraging political development: Stimulus through deregulation adds not one penny to the deficit, and leaves the risk/reward trade-off in the hands of private actors where it belongs. To be sure, fiscal conservatives must watch carefully how this unfolds, but there are glimmers of hope in what Trump said, and didn’t say, last night.
Beyond infrastructure, Trump had some interesting things to say about the prescription-drug market. Bearishly, he reiterated vague and concerning references to how drug prices “must come down,” implying the possibility of federally administered price-fixing. But he also said explicitly, albeit without much detail, that he wants to streamline and improve the FDA process for drug approval. Could he possibly mean that a less perverse process for drug approval would itself drive drug prices down? Let’s hope so. Either way, the mixed message here is likely a wash for pharmaceutical-company investors, as the continued threat of federal intervention to bring down drug prices is worrisome, while talk of FDA reform is encouraging.
There was no new news on tax reform, as the underlying commitment to relieving companies of a non-competitive tax liability was reiterated, but details of a potential border tax adjustment were not offered, though Trump did offer general complaints about a system that punishes U.S. exporters. Giving the corporate sector tax relief would be the easiest way for Trump to encourage economic growth, but his speech didn’t offer much by way of clues as to how he will do it, even if it said little to suggest that he won’t do it, one way or another.
In a nutshell, the economic implications of last night’s very effective speech are quite simple: Markets continue to believe that Obamacare repeal and replacement and corporate-tax reform are coming, and that deficits are not going to balloon because of Trump’s agenda. In front of Congress, Trump did nothing to discourage any of these beliefs, even if he didn’t tie himself to a specific path forward.