The much awaited Donald Trump’s address to the Joint Session of Congress actually evoked mixed feelings. There is no gainsaying the fact that the speech was thoroughly inspiring. With his focus on "Making America Great Again", Trump managed to almost recreate the now-famous "Audacity of Hope" speech delivered by Barack Obama a little over 8 years ago. The difference between Obama’s "Audacity of Hope" speech and Trump’s address was in the context. Obama’s speech came in the aftermath of the biggest financial carnage that America had seen in the last 60 years. The Lehman crisis had left the entire American financial system looking fragile and vulnerable. It was here that Obama’s audacity of hope provided the much needed succour for the rattled and embattled Americans.
Trump’s address to the Joint Session of Congress was slightly on a different note. It comes in the aftermath of a prolonged period of stagnation in the US. Successive US presidents had spent trillions of dollars (over $6 trillion to be precise) fighting totally meaningless wars in the Middle East, West Asia and South Asia. Through his election campaign, Donald Trump had harped on an America that would once again become-inward looking and focus more on its domestic economy.
Taxes will be cut, but no details were given…
What the speech did do was to reiterate the government’s commitment to cut corporate taxes and personal taxes. The US has one of the highest levels of corporate taxes, which has forced many large US companies to shift their headquarters to tax havens like Ireland to avoid paying the steep US taxes. In his speech, Trump has promised a corporate tax regime that will not only incentivize US business to stay back in America but also heavily penalize US companies that decide to move operations and jobs to other countries. On the individual taxes front also Trump has promised to implement massive tax cuts which are likely to spur spending and demand in the economy. However, the speech disappointed in that there were no specific details or even a remote hint of specific details. To that extent, it was more an extension of his election campaign.
Big boost to infrastructure via public-private partnership…
This was one of the major promises made by Trump in his campaign. In his address to the joint session of Congress, Trump reiterated his committed to infuse $1 trillion into infrastructure within the US. According to Trump, even if a fraction of the $6 trillion that America spent fighting wars in the Middle East and West Asia had been spent on local infrastructure then US infrastructure would have been at par with global standards. Here again, the global markets were expecting greater detailing and a game plan with respect to the timelines and the phasing of infrastructure investments. Beyond a promise to get Congress approval for the investment and encourage the PPP method, there was little available by way of minute details on this front.
Isolation may continue to be Trump’s broad theme for America…
What would, probably, worry global markets in the speech is that isolation and insulation seems to be the underlying theme of his broad domestic and international policy. For example, there seems to be no rethinking on the wall along the Mexico border. It is immaterial who bears the cost of the wall; but the very idea of cutting off your neighbour who has been your trade partner for decades reeks of insulation. The withdrawal of the US from the Trans-Pacific partnership and its proposed abdication of the NAFTA deal also indicate that America will be unwilling to extend big-brother concessions to smaller nations, something that has been the hallmark of US policy over the last 7 decades since the Second World War.
Local jobs could be a two way street for Trump…
Like in his previous speeches, Trump has focused at length on creating and protecting local jobs. While that is fine on paper, it is doubtful how far the economics of this decision will be supportive. For example, software outsourcing to India makes a lot of business sense to the US. They get quality jobs done at much lower cost, which is what has enabled US companies to focus on the bigger picture. American automobile and technology companies set up factories in places like China, Taiwan and Mexico because labour was cheaper and they could manufacture world-class products at globally competitive prices. As much as these ideas of isolation and insularity are appealing to local Americans, it is doubtful whether such ideas will be practically workable in a globally integrated world where each country focuses on its core competency. That is something only time will tell.
What happens to Obamacare?
Like in the previous cases, Trump has continued to reiterate that the Obamacare will be scrapped and a more affordable healthcare plan will be launched. Again, there is little by way of details available. The only interesting point made by Trump was that he will also focus on ensuring that those with pre-existing diseases and otherwise ineligible to get medical cover also benefit from this plan.
To sum it up, markets were expecting a lot more by way of detailing in Trump’s address to the joint session of Congress. In many ways, it has been a reiteration of his election campaign and his first speech after assuming office in January 2017. Trump came to power with a lot of promise and global markets gave him a thumbs-up hoping that he will trigger a sharp revival in the US economy. The longer Trump takes to get down to the nitty-gritty of these promises, the faster the global markets are likely to lose their patience!