Key-takeaways from Trump Press Conference

The much-touted Trump press conference was a classic case of “much ado about nothing”. There were expectations on some announcements pertaining to taxes and infrastructure spending. The speech dwelt a lot more on Russia, the media and said very little about the reformist noises that markets actually wanted to hear. On the other hand, Trump disappointed by being harsh on the pharma sector and on US companies outsourcing their activities to lesser-cost destinations in emerging markets. Here are the take-aways…

What about reforms? 

It would not be inappropriate to say that Trump had actually raised the hopes of markets. With his focus on cutting taxes and infrastructure, the market expected some great opening comments. The speech was bereft of any such reformist noises. Tax cuts in the US were important because it means that the spending power goes up and translates into higher demand from the US. Infrastructure spending was likely to have a multiplier effect on growth. The combination of lower taxes and higher infrastructure spending was expected to create a virtuous circle of higher inflation, higher spending and higher growth in the US. The speech did not make any mention of them. The impact was obvious as equities corrected, the dollar weakened and safe haven gold was again attracting demand. Looks like Trump failed to make a reformist dent!

Watch out, companies… 

The Trump speech was almost a warning for 3 key sectors with larger global ramifications. Firstly, Trump is likely to penalize pharma companies for overpricing drugs. This could open a Pandora’s Box. It will be negative for Indian generic makers, who have also been accused of price fixing. Secondly, Trump plans to impose a Border Tax on US companies that outsource to other countries. This is a kind of penalty for shifting jobs out of the US. What Trump needs to realize is that such decisions are best determined by “Economics”! If Apple can produce a world-class I-Phone in China at a fraction of the cost, then what is wrong? Lastly, defense spending could come under the scanner with costs being re-examined. That is bad news for countries and companies counting on Trump for outsourcing US defense manufacturing orders. 

Speech was low on transparency…

The speech was also very low on transparency. Trump has refused to make his tax returns public, something previous US presidents have done. Secondly, even as US president, Trump will continue to hold on to his business interests, he will only transfer the management to his sons. That is a huge conflict of interest. In a nutshell, the Trump speech was largely insipid at a time when the world was expecting some bold reformist initiatives!  ©

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