Stocks Special Reports LICs Credit Technical Analysis Funds ETFs Tools SMSFs
Learn
Video Archive Article Archive
News Stocks Special Reports Funds ETFs Features Technical Analysis SMSFs Learn
About

News

Market response to Trump's speech doesn't change policymaking realities

Libby Cantrill  |  03 Mar 2017Text size  Decrease  Increase  |  

Page 1 of 1

While President Trump's first speech in front of Congress was a success in many ways, it does not necessarily change the inherent difficulties of policymaking in Washington, PIMCO's Libby Cantrill says.

 

The market's overwhelmingly favourable reaction to President Trump's first speech to a joint session of Congress was not necessarily surprising: President Trump veered away from the more protectionist and nationalistic tone of his inaugural address to instead deliver a more hopeful, conciliatory, and unifying speech.

He sought to reassure nervous congressional Republicans that he is presidential, while at the same time, he tried to open the door with congressional Democrats on some shared objectives, such as paid family leave and infrastructure.

Yet, however strong the speech was on style and however bullish the reaction has been among certain risk markets, President Trump's speech did not significantly change the stubborn facts about policymaking in Washington.

The two priority issues for President Trump and congressional Republicans in 2017--healthcare overhaul and reform of the tax code--are two of the most complex and time-consuming issues Congress can tackle.

To provide some context: Congress has not undertaken tax reform since 1986, when President Reagan had to use significant political capital to advance it (and it still took him several years).

Similarly, it took President Obama 14 months to pass the Affordable Care Act ("Obamacare") at a time when he had bigger majorities in Congress and a higher approval rating than President Trump currently enjoys.

Importantly, there remains very little agreement among congressional Republicans on how to replace Obamacare and how to reform the tax code.

On healthcare, while there is broad agreement that Obamacare should be repealed, there is not necessarily consensus that there should be a replacement, not to mention a common vision about what a replacement may look like.

On tax reform, even with President Trump's tacit endorsement of the controversial "border adjustment tax," a centrepiece of the House Republican tax plan, there remain significant obstacles to the BAT in the Senate.

While tax reform can get done without the BAT, it would likely result in a smaller plan that would need to be reworked, which could easily mean a bill is not signed into law until 2018.

This is a long way of saying that while President Trump's first speech in front of Congress was a success in many ways, it does not necessarily change the inherent difficulties of policymaking, especially in the complex areas of healthcare and tax reform.

More from Morningstar

• A soaring US dollar poses risks for the world economy

• Why infrastructure appeals to investors: 3 reasons and 3 stocks

• Make better investment decisions with Morningstar Premium | Free 4-week trial

 

Libby Cantrill is PIMCO's head of public policy. This is a financial news article to be used for non-commercial purposes and is not intended to provide financial advice of any kind. Opinions expressed herein are subject to change without notice and may differ or be contrary to the opinions or recommendations of Morningstar as a result of using different assumptions and criteria.

© 2017 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782 ("ASXO"). The article is current as at date of publication.