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He was supposed to be leading a revolt against America’s elites. In practice Donald Trump is laying out a banquet for their delectation. The Trump White House is drawing up plans for across-the-board deregulation, tax cuts and a new generation of defence contracts. The only question is at what speed.
In contrast, Mr Trump’s middle-class economic plans, such as they were, are already receding. The chances of a big infrastructure bill are rapidly dimming. In marketing they call this bait and switch. The effect of Mr Trump’s economic agenda will be to deepen the conditions that gave rise to his candidacy.
The biggest winners will be on Wall Street, in the fossil fuel energy sector and defence. Stephen Bannon, Mr Trump’s most influential adviser, last week described the bonfire of regulations as the “deconstruction of the administrative state”. For every new regulation, two will be scrapped. The first clutch will come this week with executive orders undoing Barack Obama’s “clean power plan” that limits carbon dioxide emissions and a separate one on clean water. Anticipation of this has helped to fuel the boom in energy stocks since Mr Trump was elected. The Dow Jones Industrial Average rose more in Mr Trump’s first month than for any president since Franklin Roosevelt.
Financial stocks have also over-performed since the election. Many, if not most, of the protections included in the Dodd-Frank law after the collapse of Lehman Brothers are in Mr Trump’s sights. These include the Volcker rule that restricts banks from speculating with other people’s money, and possibly protections designed to shield the consumer — what Mr Trump called the “forgotten American” — from reckless marketing. Such rules have inhibited Mr Trump’s Wall Street friends from lending money, he said earlier this month.
Elsewhere the open season is well under way. Mr Bannon’s “deconstruction” is already touching most areas of US federal activity. Last week the stocks of private prison companies soared after the Department of Justice scrapped an Obama rule that ended the outsourcing of federal incarceration. They had already jumped after the announcement the Trump administration would detain illegal immigrants in federal centres rather than release them.
Likewise, the new head of the Federal Communications Commission has purged key parts of the net neutrality rules put in place to shield consumers from discrimination. The FCC also scrapped plans to open the cable box market to competition. Expect similar field days in the for-profit higher education sector, defence industrial stocks and public housing contractors.
The scale of Mr Trump’s tax cuts are more vague. Steven Mnuchin, the Treasury secretary, wants them enacted by August. It is unclear whether it will include a “border adjustment tax” that would hit importers but supposedly incentivise manufacturers to bring production back home. The import tax would raise roughly $1tn over the next decade and finance a much larger tax cut than otherwise. Unsurprisingly, the only stocks that have done badly since Mr Trump was inaugurated are big retailers, such as Walmart, who would be hardest hit by a 20 per cent border tax. Their customers are the forgotten Americans whose grocery bills would soar. It matters little to them whether Mr Trump pushes through a large or a medium sized tax cut. Simple arithmetic ensures the gains would go disproportionately to the top one per cent.
How will Mr Trump keep the forgotten Americans happy? His only concrete promises were to boost infrastructure and protect entitlements such as social security and Medicare. Only the second is likely. Plans to raise infrastructure spending were more apparent than real — most of the supposed new money was in tax credits rather than spending. But even this is unlikely to pass Congress this year.
The answer lies instead in Mr Trump’s grander promise to pursue a “buy American and hire American” agenda. The beauty is that he can define the art of this deal any way he wants. Talking up the “big mess” Mr Trump says he inherited from Mr Obama is a part of it. Deporting illegal immigrants counts as hiring Americans. Cajoling companies to announce new jobs in the US, or to bring them back, will also fuel that narrative — even if they are simply repackaging existing plans. Expect a flood of fake job announcements.
The darker side is who Mr Trump will blame when people start to complain.
His administration’s perennial enemy is what Mr Bannon calls the “big opposition” — the media. Bad news will be dismissed as globalist propaganda.
Mr Bannon has also reiterated the case for “economic nationalism”. China, Mexico and others are ready scapegoats. Expect large anti-dumping actions in the coming months. Then there are the Muslims, illegal immigrants and so on. They are soft targets.
Will Mr Trump’s tactics be enough to make the forgotten American feel remembered? Possibly. The president has a knack of sounding off against the elite while lining their pockets. The rule with Mr Trump, as in life, is to watch what he does, not what he says. They are often two different things.