Inspiring? Infuriating? Whatever your position on Donald Trump W68, he’s proven to be the most unpredictable president in American history. To interpret what we’ve seen so far and anticipate where we may be headed, we asked an expert panel of Wharton professors to examine his policies and do the impossible—predict the future for a nation under Trump.
Nearly everything about President Donald Trump is unprecedented: his leap from the executive suite directly into the Oval Office; his embrace of Twitter to praise and criticize individuals and companies, sometimes moving the stock market; his refusal to disclose his tax returns; and his blurring of the line between public service and private enterprise, to name just a few ways in which he’s a POTUS unlike any other. Up to press time, with Trump in office for less than three months, news broke on a daily basis. Protests erupted. Supporters filled a campaign-style rally. Numerous fires continue to burn in the wake of Trump’s executive orders and unorthodox style of dealing with the press and foreign leaders. The one constant amid all the chaos: We’re in uncharted territory. Early in President Trump’s first 100 days in office, Wharton Magazine turned to our own cabinet of advisors—a team of the school’s most distinguished professors, some of whom have served or helped to transition previous Democratic and Republican administrations—for their perspective on Trump’s policies so far and what may lie ahead.
Wall Street, Finance, and Corporate Taxes
Best-selling author and Russell E. Palmer finance professor Jeremy Siegel is no stranger to making stock market predictions, and in early March, with the S&P 500 index up nearly 11 percent since the election, he sees the positives outweighing the negatives so far. Siegel says that’s partly because investors like the Republican agenda, which includes the prospect of lower corporate taxes, less regulation, and lower taxes on interest and dividend income. There could be “substantial” upside to Trump-led tax reform and deregulation.
During his campaign, Trump pledged to boost infrastructure spending nationwide. Siegel recommends a cautious approach. “Unless the labor participation rate rises, the massive infrastructure spending that he plans would strain the economy and cause the Fed to raise the interest rate more rapidly and offset a lot of the gains that the stock market may have made,” he says. “So I think he has to be very, very careful about that.”
Meanwhile, Siegel says, Trump is utilizing a “carrot and stick” approach in an attempt to bring back manufacturing jobs. “The big carrot is, we want to make it more attractive for you to produce in the United States,” he says. “We’re going to lower your tax rate, and we’re going to lower regulation.” Meanwhile, the stick is the ability to put a tax on goods produced abroad that a company reimports to sell in the United States.
Since the bottom of the last recession in 2009, the U.S. has gained a modest number of manufacturing jobs. “Economically, we already know that most of the loss of manufacturing jobs was not through the outsourcing—not through producing plants in Taiwan, China, and Mexico—but through the tremendous gains in productivity, which means we needed fewer people to actually produce the output,” Siegel explains. “The U.S. actually produces more manufacturing output now than we did in 1970. Trump has it wrong when he says it’s just outsourcing that has caused the loss of those jobs.”
Siegel says investors also remain worried about how President Trump will respond to a foreign affairs crisis, which most presidents face at some point during their tenure. [The Syria missile strike occurred at press time.] The anxiety is palpable, but Siegel says there’s reason for optimism. “If we knew that Donald Trump would not go on an anti-trade agenda, on a currency-war agenda, this market would be up 10 to 15 percent,” he says. “And in fact, if he doesn’t go in that direction over the next six or 10 months, we could have a nice bull market in this year.”
Trade, Manufacturing, and Immigration
The “America first” mantra in President Trump’s inaugural address—with its embrace of protectionism —is the opposite of what Mauro Guillén recommends. “I think over the long run, it’s much better to be an open economy and let global forces send the right kinds of signals to the people who should be making these decisions,” says Guillén, director of the Lauder Institute and Dr. Felix Zandman, professor of international management. The decision makers, he adds, should be investors, entrepreneurs, and companies—not the government. “If you isolate companies from the rest of the world, they’ll become lazy,” Guillén explains. “You want them to be competitive, so you want to expose them to competition, as opposed to protecting them.”
Guillén says people forget that the North American Free Trade Agreement was “a protectionist bloc” that resulted in hundreds of European and Asian companies—including many automakers —shutting down factories in their home countries in favor of setting up shop inside the U.S., Mexico and Canada in order to remain economically viable. “Has NAFTA been successful even if Mexico has been the prime beneficiary? Absolutely, yes,” he explains, “because it’s in the national interest of the United States to have Mexico develop and be as stable as possible.” Guillén says that all Trump has accomplished by disparaging Mexico is to cause the peso to drop in value: “Anything made in Mexico is now more attractive to U.S. consumers.”
As for the notion that immigrants are taking jobs away from Americans, Guillén says that’s unfounded. Here’s why: Immigrants typically take jobs nobody else wants to do, such as agricultural work, or that nobody else is capable of doing, as is often the case in the high end of the employment spectrum. “About 27 percent of all of the high-tech ventures in the United States have been founded by immigrants,” Guillén says. “Are you going to leave all of that talent outside?”
Guillén has been astonished by how the Trump administration has failed to consider the “secondary effects”—the economic and financial fallout—of 180-degree policy shifts and of pulling out of major agreements that took years to negotiate. Guillén says President Trump’s decision to exit the Trans-Pacific Partnership prompts the question: “So what happens now in Asia?” China is already the most important trading partner for many of the TPP economies. In 1980, when Ronald Reagan was elected president, the U.S. accounted for about 26 percent of the global economy; that has declined to less than 22 percent today, according to the World Bank. “The U.S. domestic market is the second largest in the world after the European Union, but 10 years from now, we’ll be smaller than China and India,” Guillén says. “But the reality right now is that most American firms are doing well because they’re making money overseas.”
Ann Harrison agrees that Trump’s “America first” approach poses some real risks: “Walking in and declaring that we’re going to turn our backs on this global architecture, which took so many decades and reflects so much historical learning, doesn’t do justice to all the treaties we signed, all the agreements we reached,” says Harrison, professor of management, business economics and public policy and William H. Wurster professor of multinational management. Still, she says, Trump’s philosophy does have its merits: “Some pulling back is important, because people have been hurt by globalization.”
Harrison’s forthcoming book, The Factory-Free Economy, examines the impact of deindustrialization. She says Trump’s protectionist policies won’t solve a lack of long-term employment possibilities: “Overall, manufacturing is becoming more and more capital-intensive and less and less people-intensive. And even in China, people are being replaced with robots.”
Like Harrison, Guillén is concerned about the climate of uncertainty, but his economic outlook is optimistic. “One of the strengths of the American economy is its ability to reinvent itself,” he says. “Some of the industries that right now are generating the most jobs in the U.S. didn’t even exist 20 years ago. And trade, of course, provides incentives for those things to happen.”
Debt, the Federal Budget, and Taxes
Boettner professor Kent Smetters, director of the Penn Wharton Budget Model and professor of business economics and public policy, is focused on America’s economic future. Smetters says he’s concerned we’re not on a “very strong path” because Medicare, Social Security, and Medicaid are consuming so much of the federal budget that there could be “an explosion of debt” over the next couple of decades. “The more government debt we see,” he says, “the less business investment we’re going to see, and that’s going to have a really negative impact on the economy.”
Smetters served in George W. Bush’s administration as deputy assistant secretary for economic policy at the Treasury Department. He says that under current law, the tax schedule is “very progressive,” with 10 percent of people in the U.S. paying about 60 percent of all federal income tax. While this prospect has led to substantial partisanship,Smetters says, he’s most concerned about the tax implications facing entrepreneurs. “The big one for me is making sure we have a lot of incentive still to be taking risk,” he explains. “If we have a tax system that basically says, ‘If you win, we’re going to take a lot of it,’ that is going to substantially reduce risk taking.”
Despite the buzz in Washington about a possible border adjustment tax, Smetters cautions that such a proposal would take at least three years to pass muster with the World Trade Organization—a process he’s familiar with from his days in the Bush administration. While a border adjustment could promote U.S. economic growth, Smetters says, “It could also lead to huge trade wars, because other countries could start to use this as an excuse to start putting big tariffs on imports. The adjustment needs to be carefully explained so that it avoids the appearance of protectionism.”
In light of employment trends, Smetters also questions President Trump’s pledge to resuscitate the coal industry—a sector of the economy that’s been dormant for years and is being buried by lower natural gas prices and hydrofracking, which the Trump administration favors. Then there are the crippling effects of automation on manufacturing jobs: “The best guesstimate is that for every one job that’s lost to trade, nine are lost to automation.”
Where he sees promise is in Trump’s call for infrastructure improvements, especially in fixing existing structures like bridges. Repairs, Smetters says, have been neglected for a long time and offer a “much higher ROI than new infrastructure.”
Crisis Management and the Press
It takes months—if not a year or more—for any administration to move its policymaking engine forward. So far, the Trump team doesn’t get high marks for a smooth transition, says associate professor Kevin Werbach, of Wharton’s Legal Studies and Business Ethics Department. “This administration is going to go from crisis to crisis,” says Werbach, who served as the co-lead of the Federal Communications Commission Agency Review for the Obama transition and went on to advise the FCC and the Department of Commerce during the early years of the Obama administration. “I would be shocked if that’s not what happens, partly because the administration is singularly unprepared to deal with the incredible complexity of managing the basic functioning of the federal government.”
Werbach cautions that management by crisis isn’t sustainable: “At some point, the wheels are going to grind to a halt. Trump and perhaps a few people around him can assume an indefinite trench-warfare and crisis mentality, because that’s where they’re comfortable, but most people can’t.”
Werbach is also concerned that the FCC could be weakened if the administration adopts the mainstream conservative Republican agenda, which supports less business regulation overall. “We have an agency in the federal government that has the legal authority to censor content,” Werbach says. Yet the FCC could also be too aggressive in some areas, which is troubling, given that it controls broadcast licenses and reviews mergers that are vital to media organizations. (Though the planned AT&T takeover of Time Warner, parent company of CNN —a frequent target of Trump’s criticism—will bypass the FCC, it still requires Justice Department approval.) “During the Nixon administration, for example, as well as at other times in history, presidents have used the FCC to attack the media and those whose views they didn’t agree with. I’m very frightened that’s what we’re going to see.”
The Environment
When I arrive in his office in Steinberg-Dietrich Hall, assistant professor of business economics and public policy Arthur van Benthem is glued to the confirmation hearings for Scott Pruitt as head of the Environmental Protection Agency. Van Benthem says the environment has become “collateral damage” because the Trump administration has nominated a lot of “aggressively anti-environment people” for high-level cabinet positions. While President Trump has said repeatedly that he’s interested in reviving the coal industry, van Benthem says this is an unlikely outcome: “Even without any government intervention to reduce carbon emissions, natural gas will replace coal countrywide.” Given the significant global investment in offshore wind farms and large solar farms, van Benthem thinks President Trump will change his tone: “I actually think Mr. Trump is going to realize that investing in green technology will bring jobs and infrastructure and all kinds of things he likes.”
On the policy front, van Benthem is keeping his eye on flagship environmental legislation, including the Corporate Average Fuel Economy standards for cars, which the Obama administration tightened, and the Clean Power Plan, which restricts how much CO2 electricity producers can generate. In late March, Trump signed an executive order to roll back Obama’s climate change initiaives, including a withdrawal from the Clean Power Plan; Trump also proposed cutting the EPA’s budget by 31 percent. Van Benthem is also focused on any efforts to erode conservation and biodiversity rules, and on a group of “green Republicans”: “There’s a loose coalition of a handful of GOP senators with a reasonably pro-environment history, particularly Susan Collins, Lindsey Graham, and Lamar Alexander. So far, they have chosen to stay mostly quiet. But the fate of prominent environmental policies lies in their hands, as they could swing the Senate should they decide to stand up to Mr. Trump.”
If the EPA becomes less active and hands more authority to states, van Benthem says, California and New York may emerge as champions of environmental protections—forming regional carbon trading initiatives or teaming up with other states to “adopt stricter rules than the federal EPA requires.”
Health Care
Scott Harrington, the Alan B. Miller professor of health care management and chair of the health care management department, says that the failed effort to repeal the Affordable Care Act and replace it with a new law faced enormous challenges from the start. “It was a very heavy lift politically,” he says. “Going forward, it would be great to have extensive debate and some bipartisan compromise, but that appears to be a remote possibility anytime soon.”
The proposal unveiled by House Republicans in early March focused on simplifying the tax subsidy scheme, providing federal funding to states to help stabilize the markets for individual health insurance, and phasing out federal support for the ACA’s Medicaid expansion. It also enacted per-enrollee caps on federal Medicaid funding, with more state flexibility. “The eventual goal was to reduce the degree to which federal rules govern the design and pricing of products,” Harrington says. The hope, he adds, was that “you can end up with greater flexibility and lower costs of insurance in the individual market and perhaps the small-group market, as well as greater efficiency and lower cost in Medicaid.”
The negative reaction to the replacement plan came from many fronts, including those concerned with reduced subsidies for people with the lowest incomes and some older buyers. In the end, Harrington says, “It was the House Freedom Caucus that killed the bill for not going far enough to dismantle the law, despite support from the president, Speaker Paul Ryan, and a large majority of House Republicans.” The path forward at this point is unclear: “A potential crisis in the form of premium increases and insurer exits from the ACA marketplaces
could bring things to a head later this year.”
Harrington points out that many details of any health care law are subject to administrative discretion. President Trump’s appointees—including Seema Verma, head of the Centers for Medicare and Medicaid Services, and Tom Price as the new Secretary of Health and Human Services—“can have a major impact on the shape of those programs going forward,” he says.
“One of the lessons from the Affordable Care Act and the failure to replace it is that passing major social legislation on a one-party basis is not sustainable,” Harrington says, “not only because of the raw politics that are involved, but because when things tend to go wrong, you’re in a situation where you can’t come to any agreement about how to fix the problems.”
The “Negotiator in Chief”?
The book Friend & Foe by Maurice Schweitzer, the Cecilia Yen Koo professor of operations, information and decisions, may help shed some light on President Trump’s approach to leadership. “Humans are wired to cooperate and compete,” Schweitzer writes, with co-author Adam Galinsky. “Sometimes we cooperate enthusiastically with people and build enduring bonds with them. At other times, we engage in fierce competition with and have little regard for others. Even within a single interaction with the same person, we can oscillate between the two approaches.”
Schweitzer remains concerned about the effects of the Trump administration’s “tangled mess” of conflicts of interest, including disclosure issues and President Trump’s refusal to transfer his assets into a blind trust that passes muster with the Office of Government Ethics. “We know from the research on conflicts of interest that even when we acknowledge them, they still tug at us,” he says. “Conflicts of interest can also erode trust, and I think that’s going to be a nagging concern for the general American public.”
President Trump was the first presidential nominee since 1972 not to release tax records during the campaign. “The only good reason why you wouldn’t disclose tax returns is because you don’t want people to know—not because you’re under some audit or something else,” Schweitzer says. “The lack of transparency makes trusting Donald Trump harder.” Trump’s low approval ratings may be tied to these conflicts, which Schweitzer forecasts won’t dissipate. “They’re going to loom large whenever something happens that may benefit Donald Trump,” he says. “People will have concerns about an ulterior motive, and those concerns are going to nag him throughout his presidency.”
Schweitzer questions the image of Trump as “Negotiator in Chief” based on what he’s learned by studying the president’s interactions with both China and Mexico: “Trump began these relationships as an adversary, and I would argue needlessly so.” Another early observation: “He has a tendency to aggravate relationships with allies such as Australia, and internally with fellow Republicans such as John McCain. That’s not a sign of a great negotiator. You want to build relationships.”
While Schweitzer says Trump has had strings of successes in his personal empire, the professor is troubled by the stories of jilted business partners. “There are many people who share similar negative stories about how he didn’t follow through on commitments, changed terms, or exploited the power that he had—those are cautionary tales,” he says. “In politics, it’s going to be harder to get away with this behavior, in part because everything is so public and because this is a long game with the same players.”
Uncertainty Reigns
Given the minute-by-minute scrutiny of every move made by President Trump and his staff, it’s easy to overlook the fact that we’re less than four months into a four-year administration. With Trump at the helm, says Kevin Werbach, “There is just more uncertainty than ever.” Shaking up the political and cultural landscape may impact the economy, global finance, and industry in unexpected ways—with positive and negative potential outcomes that are hard to anticipate with such an unpredictable leader. At press time, with Trump’s first 100 days not quite complete and much left to accomplish on the action plan he outlined in November, the world—and Wharton—is watching closely.
PRESIDENT TRUMP: BEYOND THE FIRST 100 DAYS
The conversation is just beginning. Follow continuing coverage of the Trump administration on www.whartonmagazine.com, and tune in on Thursday, May 4, at 2 p.m. for a live Wharton Magazine program on Business Radio powered by the Wharton School, Sirius XM 111, when management professor and director of the Center for Human Resources Peter Cappelli will discuss the latest presidential news with some of the experts in our “cabinet of advisors,” including Scott Harrington, Kevin Werbach, and Arthur Van Benthem. And as always, we want to hear from you—join us on Twitter (@whartonmagazine) and Facebook, or email your thoughts on this story to magazine@wharton.upenn.edu. We’ll publish as many as possible in the next issue.
Joshua Brockman is a journalist whose stories on business, technology, and the arts have been published by NPR, the New York Times and Smithsonian.
Published as “The Trump Effect” in the Spring/Summer 2017 issue of Wharton Magazine.
