The First 100 Days Report

Just released Protiviti Flash Report details key developments from the first 100 days of the Trump administration:

Saturday, April 29, marked President Donald Trump’s 100^th day in office. Needless to say, the first 100 days of his presidency have been interesting to watch. Since we released our Flash Report last year commenting on the implications of the 2016 U.S. election,^[1] there has been high interest globally as to the direction the new administration will take on key issues and in delivering on campaign promises – particularly the more controversial ones.

In this Flash Report, we discuss developments during the first 100 days on a number of key policy fronts. An appendix is also provided to offer additional commentary on the developments affecting different industries.

Overview of the First 100 Days

The final week of the first 100 days had its share of dramatic developments. Returning from the April recess, Congress had just four days to pass a bill to fund government operations or else force a government shutdown. Fights loomed in both chambers over such matters as the proposed border wall, sanctuary cities, continuation of Obamacare subsidies, Planned Parenthood funding and the proposed boost in military spending. As the week unfolded, the president signalled his willingness to delay funding of the border wall to avoid the shutdown, with a plan to wait until Republicans start drafting the budget blueprint for the fiscal year beginning October 1, 2017, to seek the necessary funding.^[2] Then the President agreed to include the Obamacare cost-sharing subsidies in the budget, removing the second of what many considered the two most significant obstacles to an agreement. But it wasn’t enough. On April 28, Congress passed stopgap legislation to avert a government shutdown at midnight and give lawmakers another week to reach a deal on federal spending through the end of September, with some significant differences remaining to be resolved.^[3]

From the start, the administration’s pro-growth plan, with its combination of tax reform, regulatory relief, an “America First” trade policy and a commitment to energy independence, has bolstered consumer confidence and optimism among U.S. CEOs. Talk about igniting an increase in the growth rate in the U.S. economy has energised the hiring and investment outlook. The March 2017 Small Business Optimism Index^[4] reports a surge in small business optimism since the November 2016 election, reflecting gains in earnings, capital expenditure plans and job-creation plans. Underscoring the surge in optimism is the upward momentum in the capital markets, e.g., through the end of April 2017, the S&P 500 Index has scored gains as high as 15 percent compared to before Donald Trump’s election. That said, the economy expanded at its slowest pace in three years in the first quarter of this year – 0.7 percent – highlighting how difficult it will be to raise growth on a sustained basis.^[5]

The failure of Congress’ first attempt at healthcare reform has raised questions as to whether the administration and a fractious Republican majority can get things done to advance the Trump domestic agenda. The delay of the House vote on an amended bill during the final week accentuated those questions.

Likewise, there is global concern over the possibility of a potential wave of protectionism in response to the America First policy, depending on how disruptive it is to U.S. multilateral trade relationships as well as its impact on immigration and American positioning as a world leader. Add increasing geopolitical tensions and at some point a cloud of uncertainty will supplant the optimism if the new administration is unsuccessful in advancing its domestic agenda.

As of April 29, the policy intentions articulated during the Trump campaign have been reinforced by many communications, but most notably through 32 executive orders, more than any president since World War II has issued during the first 100 days.^[6] An executive order (EO) is issued to authorise officers and agencies of the executive branch to manage the operations of the federal government in accordance with the president’s thinking. It does not change the law, but instead sharpens the focus of the executive branch when applying certain aspects of the law. The point is, these various forms of communication offer insight into the administration’s policy intentions. The administration and Congress also exercised the authority under the previously little-known Congressional Review Act (used only once in its 21-year history before the Trump administration and available only within a window of 60 legislative days, i.e., days the U.S. Congress is actually in session) to reverse a number of Obama-era regulations, particularly those pertaining to the environment.^[7]

In the political arena, though, executive orders and other forms of presidential communication advance an agenda only so far. While a presidential order may influence the activities of a federal agency and score a “quick win,” delivery in the legislature is what ultimately counts in effecting sustainable change. To that point, many regard Trump’s signature achievement during the first 100 days to be the Senate’s confirmation of his appointment of a strict constructionist to the U.S. Supreme Court.

The remainder of this Flash Report discusses developments in the first 100 days in specific areas.

Healthcare Reform

Immediately after the inaugural parade, the new president signed an EO aimed at easing the “regulatory burdens” of the Affordable Care Act (ACA), commonly referred to as Obamacare, by ordering agencies to “waive, defer, grant exemptions from, or delay the implementation of any provision or requirement” of ACA that imposes a “fiscal burden on any State or a cost, fee, tax, penalty, or regulatory burden on individuals, families, healthcare providers, health insurers, patients, recipients of healthcare services, purchasers of health insurance, or makers of medical devices, products, or medications.”^[8] Thereafter, during the first 100 days, the administration’s primary legislative focus was on repealing and replacing the ACA.

Ultimately, the plan to move the proposed bill to the House floor for a vote was not successful because the Republicans failed to garner enough support within the party – let alone with their Democrat counterparts – due to concerns that the proposed American Health Care Act did not go far enough in repealing the ACA. Passage was further complicated by the complex three-phased legislative plan coupled with the nuanced reconciliation procedures between the House and the Senate shadowing the first phase of the plan, which essentially meant a “repeal and replace” of the ACA on a piecemeal basis. Many in Congress simply couldn’t grasp the full picture. The political reality is many believe that the president’s and Republican leaders’ inability to bring together the warring factions within the party to pass comprehensive healthcare reform could potentially put tax reform in jeopardy. Thus, the administration decided to keep healthcare on the front burner while the ACA’s market performance and its impact on providers, payers and consumers continue to be monitored.

On April 26, the MacArthur-Meadows Amendment (MMA) was introduced to allow the states to opt out of two controversial components of Obamacare. The first is the essential health benefits mandate which forces insurance companies to cover comprehensive benefits for all recipients regardless of needs or wants, essentially dictating one-size-fits-all health insurance policies. The second is the community rating mandate which prevents insurance companies from setting prices based on various risk and cost factors. These provisions of the MMA allow the states to set their own standards and, as a result, increase choice and lower costs. This compromise may become a blueprint for advancing healthcare reform on a piecemeal “fix and repair” basis, given the divides within the Republican Party, as it allows, for example, Texas and North Carolina to make different decisions on health insurance regulations than, say, New York and New Jersey.^[9] With the conservative so-called Freedom Caucus signalling its support for the compromise, it was up to the moderates of the party to sign on.^[10] On April 27, House Republican leaders delayed a vote on the bill, ending the first 100 days with it being evident that a significant divide remains between the conservative and moderate wings of the party.^[11]

Tax Reform

Since the inauguration, the new administration has sent signals that healthcare reform and tax reform were top priorities – in that order. The failure to pass the ACA reform bill may be a sign that the Trump agenda, including tax reform, deregulation, changes to trade policy and infrastructure spending, will progress more slowly than some expected. With respect to tax reform, more than a few Republicans want assurance that sufficient revenue is available to offset the effect of proposed tax cuts. That debate could place everything on the table and, for that reason, significant tax reform in 2017 may prove challenging to achieve.

After the inauguration, a tax reform plan was considered imminent until a target of August was set for the reveal. On April 17, Treasury Secretary Steven Mnuchin indicated that tax reform would not be available by August, signalling a longer time frame than previously expected. A major reason for this delay is the administration’s inability to initiate healthcare reform that would reduce the government’s entitlement commitments for healthcare. This reduction is viewed by some as necessary in order to offset the reduction of tax rates. Therefore, according to Secretary Mnuchin, the August deadline was “highly aggressive,” and with the failure to pass healthcare reform, the deadline is “unrealistic.”

Shortly before the release of this Flash Report, the House Ways and Means Committee announced hearings on the tax reform blueprint. A few days later, the administration released its “core principles” of tax reform. Below are the points outlined in a one-page plan issued by the White House with the objectives of making U.S. businesses “the most competitive in the world” and removing incentives for businesses to offshore and keep money overseas in the future:^[12]

• Simplify personal taxes by reducing the number of tax brackets from seven to three – 10 percent, 25 percent and 35 percent.
• Reduce the corporate tax rate to as low as 15 percent.
• Repeal the so-called death tax on estates.
• Create a one-time tax on repatriated company assets (the tax rate that would be applied to unrepatriated foreign earnings – now estimated at $2.5 trillion (and climbing)^[13] –has not yet been announced).
• In a bid to attract international business, shift the U.S. to a “territorial” tax system in which companies only pay U.S. taxes on domestic profits. (Currently, the U.S. taxes businesses on their worldwide income, i.e., both local and foreign. Therefore, the matter of a territorial tax policy is considered important because companies would no longer be incented to move their headquarters outside the U.S. to nations with a lower tax structure. Many of the developed economies already impose a variant of a territorial tax regime.)
• Repeal the 3.8 percent Obamacare tax on corporations.
• Double the standard deduction.
• Eliminate the alternative minimum tax and most tax deductions (although, for now, preserve the mortgage interest and charitable contribution deductions).

In releasing the above “core principles,” the White House offered no timeline for the release of further specifics. According to the treasury secretary and White House chief economic advisor, the plan is premised on increasing economic growth and new job creation, which will offset any increase in the deficit. From a competiveness standpoint, the principles purport to harmonise the U.S. corporate tax system with what companies elsewhere in the developed world are experiencing. As this Flash Report goes to press, the outlook on Capitol Hill support is not positive. The prevailing wisdom is that tax reform is unlikely to get serious consideration in Congress until July and into the fall, meaning it undoubtedly will take time to get it through.

In its announcement, the White House did not address the border adjustment tax (BAT), a controversial provision included in the House plan, which essentially calls for a value-added tax levied on imported goods and has the potential to raise $1 trillion in tax revenue over the next 10 years. Critics of the BAT argue that prices will rise on imported goods (from Japan, for example) and inflation will result. Proponents argue that the surge in foreign demand for U.S. exports will strengthen the value of the dollar. In turn, a strong dollar would increase the demand for imported goods; therefore, the net effect on trade is neutral. At an event, a White House official commented, “We don’t think it works in its current form.” House Speaker Paul Ryan has also noted, “We don’t want to have severe disruptions; if you’re an importer or retailer dependent on importers, we don’t want to shock the system.”

Needless to say, the debate over tax reform is worth watching closely, because President Trump’s presidency may ride on the outcome. Many observers believe that tax reform must happen if productivity is to be kick-started to advance the American economy beyond 2 percent per annum growth.

Trade Policy

Trade may be the wild card for many observers of the new administration, particularly those who believe that robust international trade enhances the wealth of trading nations. Therefore, those who fear protectionist policies that could precipitate a trade war have cast a leery eye on the administration’s every move on the trade front.

During the campaign, Trump criticised the North American Free Trade Agreement (NAFTA), the Trans-Pacific Partnership (TPP, an agreement to lower or eliminate tariffs between the U.S. and 11 other countries, including Japan and Vietnam), and the trading partnership with China. In January, the newly elected president signed an EO serving notice that the U.S. will begin withdrawing from the TPP trade deal. In April, he issued the “Buy American, Hire American” EO directing federal agencies to procure only, and maximise federal use of, American-made goods and materials where possible. Two other trade-related orders include one requesting the Commerce Department to report on factors driving the trade deficit and another seeking to increase collection of duties on imports. Also, in late April, leaders from Mexico and Canada reached out to the administration with a request to renegotiate NAFTA rather than rescind it. In response, the president indicated a willingness to make a good faith attempt to do so, provided the negotiations result in a “fair deal” for the U.S.

As the U.S. withdraws from multilateral agreements, it appears the administration intends to initiate negotiations to enter into bilateral trade deals with individual countries that will include options to terminate the pact upon 30 days’ notice.^[14] In favouring bilateral trade deals in which there is a presumption the U.S. has stronger bargaining power, the administration is also likely to deploy trade as a tool for pressuring countries to do more on national security matters.^[15] For example, President Trump recently disclosed that he promised his Chinese counterpart, President Xi Jinping, a more favourable trade deal in exchange for cooperation in confronting the rogue state, North Korea. In an effort to encourage North Korea to suspend nuclear testing and the U.S. and South Korea to suspend large-scale military drills and deployment of a new missile defence system, China has recently suspended coal imports from North Korea and amassed 150,000 to 175,000 troops along the North Korean border. Speculation that China could cease delivering oil to North Korea has also emerged as the Trump administration manoeuvres toward comprehensive U.N. sanctions on North Korea.

Energy Independence

In March, the president issued an EO to promote energy independence and initiate a review of the Clean Power Plan, which restricts greenhouse gas emissions at coal-fired power plants. The EO rescinds several Obama executive orders and policies related to climate change, representing a major move to reverse the Obama climate change legacy.^[16]

The objective of the review of the Clean Power Plan is to protect jobs and strengthen energy security, while also ensuring that environmental protection policies provide clean air and clean water. The question is one of balance – an Environmental Protection Agency (EPA) that works to both protect the environment and enable a growing economy. The EO also directs the EPA and the secretary of the interior to review, and if necessary, revise or rescind, several regulations that may place unnecessary, costly burdens on coal-fired electric utilities, coal miners, and oil and gas producers. The EO may be a signal of a de facto exit by the U.S. from the Paris climate accord treaty, although a final decision is still pending, as the matter is a major point of dispute among advisers in the White House. Interestingly, as the administration evaluates this matter, big oil companies such as Exxon Mobil, BP, Chevron and Cheniere have sent messages to Trump urging support of the Paris climate accord.

President Trump also signed two orders reviving the Keystone XL pipeline and Dakota Access pipeline. In addition, he signed a related order that would expedite the environmental permitting process for infrastructure projects related to the pipelines.

As with other aspects of the Trump agenda, geopolitical issues may force actions by the administration that contradict its energy independence goals. For example, in response to Exxon Mobil’s request for a waiver to drill in the Black Sea, the Treasury Department announced in April that it would not grant a waiver from Russian sanctions to either Exxon Mobil or any other energy company.^[17]

Immigration Policy

Few issues are more controversial than immigration. An EO issued in January imposing a 120-day suspension of the refugee program and a 90-day ban on travel to the U.S. for citizens of seven countries labelled as “terror hot spots” was immediately challenged in the courts. In response to these objections, after failure to overturn the lower court decision upon appeal, a revised EO was issued in March to revoke the original order and suspend the refugee program and entry to the U.S. for travellers from six countries. This order was also challenged and has yet to take effect, pending an appeal that is expected to take place soon and could ultimately be resolved in the Supreme Court.

In April, an EO calling for H-1B visa reform was issued to target employers abusing the H-1B visa process to offer lower-than-market wages to immigrants with skills comparable to those of available U.S. workers for a given job. The order directs the secretary of state, attorney general, secretary of labour and secretary of homeland security to recommend reforms that will help ensure that H-1B visas are awarded to the most-skilled or highest-paid workers. The order asserts that the H-1B visa program is intended to give priority to higher-paying jobs requiring highly educated and highly skilled individuals who are the most qualified candidates, thereby stamping out abuses where outsourcing companies hoard visas with the intention of applying them to lower-paying jobs requiring low-skilled workers.^[18]

Interestingly, applications for H-1B visas are down about 15 percent this year compared to last year, possibly due to uncertainty in the U.S. about the program and talk of reform.^[19]

Infrastructure Investment

In his address before a joint session of Congress, President Trump said:

Crumbling infrastructure will be replaced with new roads, bridges, tunnels, airports and railways gleaming across our beautiful land … To launch our national rebuilding, I will be asking the Congress to approve legislation that produces a $1 trillion investment in the infrastructure of the United States – financed through both public and private capital – creating millions of new jobs. This effort will be guided by two core principles: Buy American, and Hire American.^[20]

A detailed plan has not yet been put forward to identify the sources of funds for this program. Funding is important, as Senate Majority Leader Mitch McConnell has warned that Congress may be unwilling to open up its checkbook for such a large spending package. But the reference to “public and private capital” may be a signal that the president intends to follow Commerce Secretary Wilbur Ross’ suggestion that Congress give private businesses tax credits to stimulate infrastructure projects.^[21] Interestingly, the nation’s association of civil engineers reported in March that the nation’s roads, dams, airports, water and electrical systems, and other infrastructure merit a grade of D+ and require $4.6 trillion of repair work to fix – more than the entire federal government spends in a year.^[22]

Regulatory Relief

The president has issued several EOs on the regulatory front. One order requires every agency to establish a regulatory reform task force to evaluate regulations and recommend rules for repeal or modification. Another directs the Treasury Department to review the 2010 Dodd-Frank financial regulatory law. Still another instructs agencies that whenever they introduce a regulation, they must first abolish two others – the so-called two-for-one order. In addition, in April, the EPA’s regulatory reform task force opened a 30-day public comment period to gather input on which Obama-era regulations the Trump administration should roll back.^[23]

As key regulatory posts are filled – and not all are – the administration’s deregulatory focus could start to gain traction.

Streamlining Government Operations

The president issued an order on his first day in office to impose a blanket hiring freeze for some federal government workers, excluding the military, to shrink the size of government. In March, he issued an EO to reorganise the executive branch through a top-to-bottom review to eliminate unnecessary agencies and components of agencies and agency programme, and merge functions. The proposed plan will also include recommendations for any legislation or administrative measures necessary to achieve the proposed reorganisation. In developing the proposed plan, issues of duplication and redundancy are to be considered, as well as whether some or all of the functions of an agency, a component or a program are more appropriately left to state or local governments or to the private sector through free enterprise.^[24] Finally, in April, the administration lifted the across-the-board hiring freeze to impose hiring restrictions more surgically so that certain agencies – such as the Department of Veterans Affairs and the Department of Defence – can complete their work more timely.

Geopolitical Developments

On the geopolitical stage, the first 100 days have marked reversals of some of the president’s statements during the campaign. For example, during the campaign, candidate Trump asserted that China is a “currency manipulator”; now he says it is not. He also referred to NATO as “obsolete”; now he says it isn’t. He claimed the Export-Import Bank is unnecessary; now he says it’s a “good thing.” He advised his predecessor not to attack Syria because the U.S. will get nothing out of fighting there; during the first 100 days, he launched a missile attack on a Syrian airfield. Of course, new facts and circumstances can change perspectives and, at least on the geopolitical stage in certain areas, the president has demonstrated that he can alter his.

President Trump’s reaffirmation of support for NATO comes at a time of pressure on the foundation of the European Union and acknowledges that a strong Europe continues to be of strategic interest to the U.S. His reaffirmation of support for other American allies is an important continuation of longstanding American policy. With his missile attack on Assad’s airbase, the president served noticed that he will enforce his predecessor’s “red line” against Syria’s use of chemical weapons on its own people. In other developments, he dropped a MOAB^[25] on an ISIS cave complex in remote Afghanistan, declared tensions with Russia as being higher than at any time since the 1962 Cuban missile crisis, and announced that a carrier task force was being deployed as a deterrent to North Korea and possibly even positioned for a preemptive strike against the rogue nation. In viewing these developments, we can observe that it will be difficult for the Trump administration to advance its domestic agenda if the U.S. gets embroiled in a shooting war in some region in the world.

With respect to Iran, since Mike Flynn resigned as national security adviser in February, the administration has been relatively quiet about the nuclear deal with that nation. However, on April 19, Secretary of State Rex Tillerson announced an interagency review of the process of certifying Iran’s compliance with the agreement. At the present time, there are mixed messages regarding compliance, partly because of fresh concerns Iran may be engaging in centrifuge development and continues to sponsor terrorism. If the president were to follow through on his campaign promise to “rip it up” (in reference to the agreement), the complexities of the deal are such that there is no guarantee the other signatories to the agreement – namely, Britain, France, Russia, China and Germany – would be willing to renegotiate it. Until the scope of the interagency review is clarified and the review itself is completed, it is impossible to ascertain what the administration’s next steps will be.^[26]

Other Matters

On April 10, Neil Gorsuch took the constitutional oath to become an associate justice of the U.S. Supreme Court. A strict constructionist, Judge Gorsuch was confirmed in the Senate after Republicans voted to lower the threshold for advancing Supreme Court nominations from 60 votes to a straight-up majority vote, and thereby frustrated a Democrat-led filibuster to block the confirmation. So far, the confirmation vote of Justice Gorsuch is Trump’s signature accomplishment. Given that Justice Gorsuch is only 49 years old, every 5-4 vote of the Supreme Court along ideological lines for the next 30 years can swing on his vote.

Actions by the Federal Reserve are also worth watching. The Fed has sent repeated signals that fiscal stimulus and rapid growth could push the Fed to respond with more aggressive rate hikes. However, if rate hikes get ahead of the promised reforms and stimulus, the mistiming could lead the economy into a tailspin. If faster growth doesn’t materialise, that would likely lead to conflict between the White House and the Fed. In addition, the Fed Chair, Janet Yellen, has dismissed attacks on Dodd-Frank and has asserted that the banking system is far stronger today and that there is no evidence to substantiate claims that small businesses can’t get the credit they need. She also made it clear that she has no intention of resigning. Interestingly, the president recently indicated in an interview that Yellen wasn’t “toast” after all, backpedalling from a popular campaign sound bite.^[27]

Summary

Now that the first 100 days are history, we can draw several observations:

• Companies should prepare themselves for change – Change is on the agenda, just like it was when Donald Trump emerged victorious to become the 45^th president of the United States. The nature of that change as well as its timing and extent may not be crystal clear, but it is definitely the intent of this administration to make it happen. The point is that companies owe it to themselves and their stakeholders to monitor developments and be prepared for any change that might have a significant effect on their business model.
• Clarity is needed on the specifics of major policy initiatives – Many are hopeful that the Trump administration’s pro-business, pro-growth and pro-deregulation message will gain traction and merit the dramatic increase in business confidence since the inauguration. However, uncertainties remain regarding the specifics of Trump’s positions on healthcare reform, tax reform, trade, immigration, and other major policy initiatives, as well as how those positions will play out and whether unintended consequences might result.
• Uncertainty exists as to how much can get done – While we have a fair idea as to what the president would like to accomplish – at least directionally – on most policy fronts, it remains to be seen how much his administration and the fractious Republican majority can actually get done. As we pointed out in our earlier Flash Report^[28] shortly after the election:

While Washington will have an all-Republican government, the implementation of a common agenda of policy proposals will be challenged by the dynamics between the president-elect and the Congressional Republican establishment. It is up to the president-elect to demonstrate that he can effectively harness the power of the Oval Office to deliver on his campaign promises. The Washington establishment is very likely to present stiff headwinds on certain issues.

Bottom line: While there is a pent-up demand for major legislative action on a wide range of issues, the divide between President-elect Trump and his party’s leadership must be bridged to maximise success in the next two years. Such is the case for almost any president-elect.

This commentary is just as relevant today at the conclusion of the first 100 days as it was in the aftermath of the election. There is no denying the headwinds the new administration faces from factions within the Republican Party as well as from a virtually unified Democratic Party. Not only did the Democrats slow-walk many of the president’s cabinet nominations, it is unclear in which areas, if any, of Trump’s legislative agenda they will offer any measure of cooperation. The infrastructure stimulus may be the most logical area of common ground; however, the Democrats’ approach to funding that stimulus is likely to vary widely from the president’s. Another possibility is the one-time tax on unrepatriated foreign earnings.

• Geopolitical developments can dictate the scope of domestic change – The uncertainty around geopolitical tensions and where they may lead are concerning to many. A major encounter in any region of the world, however it might be triggered, resulting in significant cost of American lives and resources, could constrict the administration’s domestic agenda.

These are points to keep in mind as we observe the Trump administration beyond the first 100 days.

To supplement our discussion of developments in the first 100 days, we offer an appendix summarising additional commentary on the implications of the first 100 days’ developments on different industries.

APPENDIX

Developments in the First 100 Days Affecting Select Industry Sectors^[29]

In our election implications Flash Report,^[30] we suggested there were possible winners and losers across multiple sectors from a Trump presidency. Here is an update of developments during the first 100 days: