WASHINGTON OUTLOOK The Transformation of Washington ... · supported, than even the big tax...

WASHINGTON OUTLOOK

The Transformation of Washington: Perspectives on the Trump Administration

By Stephen Labaton, U.S. PresidentAmb. Miriam Sapiro, Partner & Head of Washington Off ice

January 2017

2 FINSBURY | January 2017

A NEW ERA DAWNS

Now it is the Republicans’ turn.

With an ambitious yet vaguely detailed agenda intended to radically transform decades of domestic and foreign policy, Donald J. Trump is about to begin to assert control over the levers of power in Washington. He is the first Republican president since 1953 to enter office with his party having a decisive margin of control in both chambers of Congress. Republicans are single-minded about repealing the Affordable Care Act (ACA), easing corporate taxes and sharply reducing regulations over labor, banking and the environment, among other areas. The new administration has foreshadowed that it will be more hospitable to corporate mergers and transactions generally, although critical of companies that transfer jobs or profits overseas. But there remain fundamental disagreements within the Republican Party about how to replace the ACA, negotiate or renegotiate international trade and investment agreements and increase fiscal spending for infrastructure projects. Battles are shaping up between Republican leaders and the White House in these and other areas that promise to have profound implications for a wide range of industries and companies.

President Trump’s “To-Do” list is long. He inherits an economy with sustained growth and near full employment, but with stagnating wages for millions of Americans as well as a deeply divided electorate. Senior advisers say his administration will attempt to pursue a path that builds upon his campaign success of focusing attention on the well-being of the American worker. The theme of helping manufacturing workers keep their jobs will continue to animate his initiatives. Succeeding with a slogan of “America First” and a platform that a top aide has called


“economic nationalism,” Trump is bringing ideas to Washington that may upend decades of policies and approaches premised on a more global outlook. As the first president to make aggressive and seemingly unfiltered use of his Twitter account as a political weapon, Trump has routinely attacked automakers and other manufacturers and accused them of exporting jobs. He has also taken on defense contractors and drug companies, complaining about excessive prices.

He has left developing relationships between the White House and Congress largely to others, most notably his vice president, Mike Pence, and his chief of staff, Reince Priebus. They have held a series of private meetings with congressional leaders to begin to chart an agenda for the first 100 days. They are hoping to seize the moment in the wake of Hillary Clinton’s surprising defeat and the absence of a national Democratic leader.

The confirmation hearings for Trump’s nominees have been an early test of both his collaborative relationship with Senate Republicans and the strength of the Democratic opposition. But they have also illustrated that some of the Cabinet nominees have positions at odds with campaign pledges by the new president himself on issues ranging from climate change to a wall on the Mexican border to relations with Russia. The House of Representatives, meanwhile, has wasted no time articulating its preference for sweeping away years of regulations. A week before the inauguration, it approved broad but little noticed legislation that would make it substantially easier for companies to go to court to challenge existing regulations by eliminating the high legal standard of deference that federal judges have traditionally afforded to government agencies.


“I’m giving a big tax cut and I’m giving big regulation cuts. You know we have companies leaving our country because the taxes are too high. But they’re leaving also because of the regulations. And I would say, of the two, and I would not have thought this, regulation cuts, substantial regulation cuts, are more important than, and more enthusiastically supported, than even the big tax cuts.”

Donald Trump, The New York Times, November 2016

During the early days of the Trump administration, the new president and Republican lawmakers will be looking for quick wins that could be seen as changing the way Washington does business. Trump has already moderated some campaign promises by acknowledging that aspects of the ACA should be kept and that climate change may not be a “hoax.” It is not yet clear how strictly he will adhere to other positions. Initiatives that appear likely to move quickly in some form include repealing the ACA and approving the Dakota Access and Keystone XL pipelines. Trump is preparing to unwind executive orders and regulations that were completed in the waning days of the Obama administration related to environmental protections, labor overtime rules and banking regulations. The president may carry through on his threat to withdraw from the Trans-Pacific Partnership (TPP), although it would largely be symbolic because that agreement is not yet in force.

Items on Trump’s To-Do list that will likely take longer – and some of which are likely to prove especially challenging – include a significant revision of the U.S. tax code, achieving consensus on major new infrastructure projects, Medicaid reform and cracking down on illegal immigration. These and other goals will require action by Congress or regulatory agencies and thus will take longer to achieve than executive actions done by presidential directive.


Overall, the administration is certain to be friendlier toward the business community, especially in the areas of mergers and acquisitions, finance, energy, taxes and labor. There is widespread expectation that mergers and acquisitions will face less scrutiny by antitrust and other regulators in the new administration, although efforts to move companies, operations or jobs outside the United States will be sharply criticized. Some of the new president’s positions that are more populist in nature – such as tariffs on foreign imports, penalties for U.S. corporations moving overseas, controlling the prices of drugs and enormous infrastructure spending – will face political hurdles because they are anathema to traditional Republican views that are more free market-oriented. The emerging relationship between the Republican-controlled Congress and the new president will be complicated, as we have seen already in Trump’s successful effort to reverse a move by House Republicans to emasculate the Office of Congressional Ethics on the first day of the new Congress.


“What we saw from traveling with the president-elect to all these rallies is for the average American worker, they’ve gone nowhere. And our job is to make sure the average American worker has wage increases and have good jobs. That’s the priority of this administration.”

Steven Mnuchin, CNBC, November 2016

MERGERS & ACQUISITONS

In a clear signal of his receptivity to corporate deals, Trump has stacked the senior ranks of the new administration with highly successful dealmakers. These include the nominees to head Treasury (Steven Mnuchin), State (Rex Tillerson) and Commerce (Wilbur Ross), as well as his pick to head the White House National Economic Council (Gary Cohn). While top officials have yet to be nominated for many of the key regulatory posts at the Justice Department and in the agencies that review mergers and acquisitions, many believe that barriers to deals will sharply decline for domestic transactions as regulatory agencies take a decidedly friendlier approach than the Obama administration did.


Cross-border transactions, however, may receive more scrutiny in several respects. First, deals that threaten to transfer U.S. jobs overseas will risk the ire of the new president. Trump has taken to Twitter to lambaste companies he believes are moving U.S. jobs or operations overseas, in a bid to shame them into changing their plans. This practice is expected to continue when he takes office. Additionally, companies that seek to shift their tax domicile outside of the United States will be at risk. While there are limits to what the U.S. government can do to stop or slow down such transactions, Trump could continue to use his bully pulpit and Twitter account to apply significant pressure on a company’s senior leaders to maintain the same degree of, or greater, operations in the United States.

In addition, the Trump administration could apply an even higher standard of scrutiny to try to block cross-border deals that raise national security concerns during review by the Committee on Foreign Investment in the United States (CFIUS). That panel, consisting of senior officials from economic, foreign policy and intelligence agencies, could try to expand the definition of what assets are essential to national security and raise the bar for approval of certain deals, depending on the nationality of the acquiring company and a variety of other factors. While the great majority of deals reviewed by CFIUS are approved, there are a number that could raise significant issues. The critical questions are whether there is a threat to national security and, if so, whether it can be mitigated. The review process is intense, based on a careful analysis of all of the facts and considerations. In the Trump administration, proposed acquisitions by companies from certain countries, such as China, are going to attract heightened scrutiny.

It is also possible that the scope of review by the U.S. government more generally may be expanded. The new administration is likely to be sympathetic to efforts by members of Congress who are interested in developing a “reciprocity review.” Such a step, which might apply to all transactions involving certain countries and over a minimum threshold, would respond to concerns that it is unfair when foreign companies enjoy broad investment opportunities in the United States but American companies face obstacles and limitations abroad. If such legislation is approved, this layer of review would be in addition to assessing national security concerns.


TRADE

Trump vowed to slap a 35 percent tariff on goods

sold by companies that close U.S. operations and send

jobs abroad.

TOUGH ON TRADE

Trade policy – driven by anxiety about economic disruptions caused by globalization and the perception that the United States is losing out to other countries – became a lightning rod during the election among voters angered by stagnant wages, lost jobs and growing economic inequality. The protectionist views Trump articulated during his campaign run counter to decades of bipartisan consensus in favor of trade liberalization. They are also at odds with his history as a businessman who succeeded by manufacturing products outside the United States. But they tapped into a groundswell of anger that became a potent force and that will guide a number of decisions in the coming months.

Central to Trump’s signature slogan, “Make America Great Again,” are a series of trade policy proposals that depart dramatically from those of his Democratic and Republican predecessors. He has said that he is in favor of free trade, but opposed to several existing and pending trade agreements. In addition to pledging to withdraw from the TPP, the new president has promised to renegotiate or withdraw from the North American Free Trade Agreement (NAFTA). He has also threatened to punish companies that offshore jobs, to impose new tariffs on imports from countries that are not playing by the rules and to label China a currency manipulator.

Trump’s trade-related appointments and organizational changes illustrate the importance of the issue to the new administration. The president has formed a White House National Trade Council, led by Peter Navarro, an economics professor and fierce China critic.


“We don’t make good deals anymore. We make bad deals. Our trade deals are a disaster. We have hundreds of billions of dollars of losses on a yearly basis. Hundreds of billions with China on trade and trade imbalance, with Japan, with Mexico, with just about everybody. We don’t make good deals anymore.”

Donald Trump at a January 2017 press conference

Peter NavarroNational Trade Council

Director

Robert LighthizerU.S. Trade Representative

Nominee

Wilbur RossU.S. Commerce Secretary

Nominee

Steven MnuchinU.S. Treasury Secretary

Nominee

Trump has also indicated he will rely heavily on Wilbur Ross, his nominee to head the Commerce Department who previously praised the TPP, to help forge trade policy. His pick for U.S. Trade Representative (USTR), Robert Lighthizer, is a trade lawyer with broad experience at the agency and in Congress, who has built his private sector career defending the U.S. steel industry from Chinese competition. The new head of the National Economic Council is Gary Cohn, a former top executive at Goldman Sachs who has generally favored trade liberalization. Trump has also added trade negotiations to the portfolios of long-time Trump Organization attorney, Jason Greenblatt, who has been named Special Representative for International Negotiations, and his son-in-law Jared Kushner, who has been appointed as a senior adviser. With so many “cooks in the kitchen,” the ultimate power center with respect to the trade agenda remains to be determined.

Tariff and tax policy will figure prominently in the upcoming debate over a new U.S. approach to trade. Much of Trump’s statements have focused on China and Mexico, which he blames for a large part of the U.S. trade deficit and job losses. He has threatened both countries with tariffs of up to 45 percent. While current law might make it difficult for him to penalize China as a currency manipulator in the near term, greater scrutiny of Beijing’s actions is expected. Punitive measures directed against Mexico could have a major impact on the automotive industry and other manufacturers that operate there. At the same time, the high level of interdependence among the U.S., Mexican and Canadian economies created by NAFTA means that hurting one economy can harm the U.S. economy, too.


Paul RyanHouse Speaker

Kevin Brady House Ways and Means

Committee Chair

Trump has also vowed to penalize offshoring manufacturing by slapping tariffs on goods sold by companies that close U.S. operations, send jobs and production abroad and import goods back into the United States. There is fear in the business community that such protectionist steps by the new administration will backfire by inviting retaliatory tariffs, hurting businesses that rely on imports and raising consumer prices, as well as provoking trade wars that would leave both the U.S. and global economies weaker. While the president has authority to impose certain tariffs on his own, Trump’s ability to implement all of his plans would need support from Congress. For their part, congressional Republicans, led by House Speaker Paul Ryan and Ways and Means Committee Chairman Kevin Brady, have proposed a border adjustment tax, which would reward exports and penalize imports and whose legality will likely be challenged by other countries before the World Trade Organization (WTO).

Instead of multilateral treaties such as NAFTA and TPP, Trump has expressed a preference for bilateral agreements because he believes he can use his negotiating skills to achieve better deals for American workers and exporters. Moves to disrupt agreements that have enjoyed bipartisan support more closely reflect left-leaning Democratic concerns about free trade than standard Republican views, and are likely to gain support from the far left as well as the far right. But there will be just as forceful efforts to try and preserve these agreements from companies in different sectors, with strong congressional support.

Many worry that abandoning the TPP agreement in particular – which includes several of America’s closest trading partners – Canada, Mexico and Japan – and the fastest growing economies in Asia, together comprising nearly 40 percent of global GDP – means ceding U.S. economic leadership in Asia to other countries. The outgoing administration has maintained that the one country that benefits above all from a U.S. withdrawal from the TPP is China, which is forging ahead with its own regional trade agreement. There will be pressure on the Trump team from many in the business community to pause on TPP withdrawal and instead review the substance of the deal to determine whether there are aspects the administration can support (such as strong digital rules of the road or enforceable labor provisions) and areas it could try to improve (such as rules of origin or currency provisions).


The Trump administration will also have to decide the fate of the other major regional trade agreement it inherits, the Transatlantic Trade and Investment Partnership (TTIP), which has been under negotiation between the United States and the European Union. Several important issues are still outstanding, and the parties failed to reach an agreement in principle by the end of 2016. Brexit has complicated the situation, for not only has the EU lost a strong voice in favor of lowering trade barriers, but European capitals will be preoccupied with the ramifications of the split. Trump may be more interested in forging a bilateral trade and investment deal with the United Kingdom, but it will be difficult to accomplish that until the terms of Brexit and the U.K.’s new relationship with the EU are clearer.


HEALTHCARE

Tom PriceHHS Secretary

Nominee

Seema VermaCenters for Medicare and Medicaid Services

Nominee

The centerpiece of Trump’s healthcare agenda has been the dismantlement of the Affordable Care Act, which reflects a core goal of Republicans since the legislation was enacted. Trump’s pick to head the Department of Health and Human Services, Representative Tom Price – a physician, six-term Republican congressman and House Budget Committee chairman long opposed to the ACA – confirms his intention to try to repeal the law swiftly. Trump has selected healthcare consultant Seema Verma, who worked with Vice President Pence when he was Indiana’s governor on that state’s market-based Medicaid expansion and other programs, as administrator of the Centers for Medicare and Medicaid Services.

The ACA catchphrase from Trump and congressional Republicans has been “repeal and replace.” However, neither has proposed specifically how they would replace it, which is creating tension among Republicans. Concern is heightened by new consumer polls showing that the majority of Americans actually want to preserve key aspects of the ACA, specifically the ban on denying coverage for pre-existing conditions and the ability of young adults to remain on their parents’ insurance until age 26. Indeed, since meeting President Obama right after the election, Trump, too, has expressed some interest in preserving these provisions. But the ACA is a complex law and set of regulations with unique funding mechanisms. Some Republican lawmakers are reluctant to immediately repeal the healthcare law without first establishing an alternative because they recognize that the law has been based on trade-offs and that the only way to pay for the more popular elements, such as coverage for all and coverage of pre-existing conditions, is through less popular provisions that have the effect of raising rates and premiums for many. Democrats who support the existing law are hoping that it will prove too challenging for Republicans to both cut funding and preserve its popular elements.


A new health insurance framework could include replacing subsidies with a refundable tax credit, expanding tax-advantaged Health Savings Accounts to encourage individual saving for medical expenses, enabling the purchase of health insurance across state lines and converting Medicaid into block grants to states so they have greater authority over how to spend a reduced and capped amount of Medicaid funds. Affordable insurance coverage would be promised to lower-income Americans through high-risk coverage pools and by forcing insurers to compete across state lines on price, services and provider networks.

Even in the absence of a legislative repeal, Price will have broad executive authority to narrow the scope of health services required to be covered by insurance and to limit the operation of federally-run insurance exchanges. Democrats in Congress are expected to oppose all efforts to repeal or weaken the coverage provided by the ACA, although some have expressed a willingness to work with Republicans to improve certain of the law’s shortcomings.

Although Trump did not speak much about healthcare entitlements such as Medicare and Medicaid during the campaign (other than to state an intention to leave Medicare as it is), other senior Republicans have signaled interest in making significant changes to both programs. Congressional Republicans, including Price and House Speaker Ryan, long have advocated “modernizing” Medicare by transforming it from an outright entitlement to a voucher that beneficiaries could use to purchase private insurance. Trump could be led in this direction, particularly as Medicare spending increases represent a growing share of the budget deficit. Price also has criticized a recent proposal to change Medicare’s system of reimbursing healthcare providers, which would bring a shift from a traditional set price,


“We have to get our drug industry coming back. Our drug industry has been disastrous. They’re leaving left and right. They supply our drugs, but they don’t make them here, to a large extent.”

Donald Trump at a January 2017 press conference

fee-for-service model to a value-based system under which the amounts providers are paid depend on the quality and efficiency of the services they provide. Despite the fact that this Medicare pilot program has been met with resistance and thus delayed, the health system has generally embraced the value-based payment model. Leading health insurance companies continue to invest millions of dollars into this new payment model in hopes of improving quality of care.

Republicans, with Trump’s support, may try to cut other aspects of Medicaid spending, including the ACA’s increased funding for Medicaid expansion. They may also try to convert the open-ended entitlement, under which Medicaid has paid as much as needed to cover all eligible costs incurred by beneficiaries, into a limited block grant to the states. But these ideas will face fierce opposition from Democrats as well as older Americans and some state leaders.

In the pharmaceutical area, Trump has favored action to expand access to prescription drugs, including streamlining the Food and Drug Administration (FDA) process to accelerate approvals of new drugs and medical devices, an approach backed by industry. He initially expressed support for the importation of lower cost prescription drugs from other countries, an idea opposed by industry. Republicans have long supported reducing regulation at the FDA, but Democrats have pushed back, arguing that careful review is needed to ensure safety. Since the election, Trump seems to have abandoned his proposal to import lower cost drugs. However, as high drug prices have become a bipartisan concern, the administration may have to find ways to manage drug prices. In a pre-inauguration news conference, Trump highlighted as problems high drug prices and overseas pharmaceutical manufacturing, vowing to reduce costs through changes in bidding procedures by the U.S. government. These issues are extremely complex, so any substantive moves will take time and will likely be opposed by the pharmaceutical and biotechnology industries.


ENERGY

“The Environmental Protection Agency is killing energy companies.”

Donald Trump, Second Presidential Debate, October 2016

Trump has promised an “energy revolution,” vowing sweeping initiatives to “unleash” American energy reserves and expand energy infrastructure. He has pledged to rescind Obama’s Clean Power Plan, cut climate change research funding, bring back coal jobs and declaw the Environmental Protection Agency (EPA). While he argues these initiatives will support American workers and propel the U.S. economy forward, there is no question his clear aim to broadly deregulate the energy sector is welcome news for industry.

Yet repealing the past eight years of energy regulations may not be as easy as Trump’s team believes. Some domestic rules include anti-backsliding provisions, requiring any proposed replacement to be as strong or stronger. The president’s promise to “cancel” U.S. participation in the Paris Agreement within the United Nations Framework Convention on Climate Change is widely considered unfeasible, as the pact already has been ratified and has entered into force. And lifting purported roadblocks to energy production could push oil prices – already depressed by a global glut – even lower, to the detriment of the sector.


Rick PerryEnergy Secretary

Nominee

Ryan ZinkeInterior Secretary

Nominee

Rex TillersonSecretary of State

Nominee

Trump’s Cabinet picks suggest a bright future for energy companies – and a sharp departure from the views of the outgoing administration. There will be significant scrutiny of those nominations, and likely opposition, from Democrats. Senate Minority Leader Chuck Schumer described the Trump Cabinet as filled “top to bottom with allies of the oil industry,” but Senate rules and the Republican majority make it likely that at least most of Trump’s picks will prevail.

The new president’s nomination of former Texas Governor Rick Perry as Energy Secretary was a source of alarm to Democrats, who view Perry – who once pledged to abolish the department he seeks to lead – as unqualified. The decision broke with a recent tradition of appointing scientists to the post – three of the past four energy secretaries have held advanced degrees in physics or chemical engineering. While Perry has been a consistent supporter of Republican energy policy throughout his tenure leading the country’s biggest energy-producing state, he has no direct energy experience. He also has no experience managing nuclear weapons, which represent over half the department’s budget. If he is confirmed, Perry is likely to face pressure to resume nuclear weapons testing, which has not happened in the United States since 1992. He also will oversee the Strategic Petroleum Reserve, which some conservatives have urged the government to sell off.

Trump’s choice to head the EPA is Oklahoma Attorney General Scott Pruitt. Like Perry, Pruitt has painted himself as a leading skeptic of the agency he has been tapped to lead. An outspoken skeptic on climate change, he has decried the EPA’s “activist agenda” and argued that climate change science is “far from settled.” As his state’s top lawyer, he has demonstrated a close association with the fossil fuels industry, serving as a key player in pursuing legal challenges to Obama’s Clean Power Plan and EPA regulations on methane emissions. His home state has been a leading venue for hydraulic fracturing, commonly known as fracking.

Interior Secretary nominee Ryan Zinke, a one-term Republican congressman from Montana, was an early supporter of Trump’s presidential bid. Considered a strong advocate for preserving public land, he would oversee the country’s 640 million acres of federal property. But he also might help Trump act on his campaign promise to expand onshore and offshore drilling. Notably, he is likely to help push through final approval of the Keystone XL and Dakota Access pipelines. Zinke was a sponsor


of Keystone XL and referred to Obama’s decision to reject it as “just wrong.” He has said that climate change is not a hoax, but also not “proven science either.”

Trump’s decision to nominate Rex Tillerson, the CEO of ExxonMobil, as Secretary of State surprised many and cemented the administration’s ties to the fossil fuels industry. While Tillerson has no government experience and has rarely commented on foreign policy, his selection drew immediate objections from Democrats and a handful of Republicans concerned about his ties to Russia and, specially, Russian President Vladimir Putin. Notably, Tillerson’s views on climate change are more moderate than those Trump and the rest of his team have expressed. He has described global warming as a “serious risk,” expressed support for carbon taxes and referred to the Paris Agreement (which ExxonMobil backed) as an “important step forward.”

Trump’s Cabinet and the Republican majority in Congress are expected to use the Congressional Review Act to repeal some of the EPA’s most recent regulations. The statute, which to date only has been used once, permits Congress to repeal agency regulations instituted in the past 60 legislative days. A wide range of environmental mandates that have come into force during the last days of the Obama administration, such as the latest fuel efficiency standards for trucks, are at risk. Any changes would be permanent because the Congressional Review Act bars the relevant agency from ever enacting a replacement.

With a number of environmental regulations ready to be rolled back or dismantled, along with pro-energy industry figures in key positions, the Trump administration offers energy companies the prospect of a far less constrained regulatory enforcement environment in which to operate.


TAXES, LABOR AND INFRASTRUCTURE

Current corporate tax rate

Trumps proposed rate

35%

15%

Republicans are planning to make corporate tax cuts a cornerstone of Trump’s policy agenda, although a number of hurdles will make it challenging to accomplish this quickly. Trump has proposed reducing the corporate tax rate from 35 percent to 15 percent, while Democrats have previously backed lowering the corporate rate to 28 percent. Trump has also called for companies to repatriate profits held overseas at a one-time tax rate of 10 percent. Democrats may try to slow this effort through the filibuster, which requires a 60-vote supermajority in the Senate to advance legislation, so they have some negotiating power.

It is too soon to determine whether tax reform and increased spending on America’s infrastructure will be linked. Democrats, who largely support massive increases in infrastructure spending, say they will oppose major tax breaks for companies and wealthy individuals that are masked as efforts to encourage infrastructure investment. Trump has broken ranks with the traditional Republican stance with his call for $1 trillion of investment in infrastructure over the next 10 years. Trump claims that his plan will be “revenue neutral” and largely paid for by encouraging public-private partnerships through tax incentives. He also sees the potential for significant growth in jobs to rebuild roads and bridges. Republicans, however, worry that his plan sounds similar to Obama’s controversial stimulus package, and they are reluctant to call for any sort of tax increase or to expand the deficit to pay for it.


Elaine ChaoTransportation Secretary

Nominee

Elaine Chao, Trump’s pick for Transportation Secretary, has said that she hopes to upgrade the country’s infrastructure “with or without a new infusion of funds.” She has also suggested finding ways to decrease “regulatory burdens” and “expedite the process” of making infrastructure repairs. Trump may find allies among Democrats for infrastructure spending, but he will need reluctant Republican leaders to bring it forward in Congress. Senate Majority Leader Mitch McConnell has already said that he wants to “avoid a trillion-dollar stimulus,” and it may not be a coincidence that Trump put McConnell’s wife in charge of the Department of Transportation and this issue.

ALSO ON THE CHOPPING BLOCK

President Obama’s overtime rule that would extend eligibility to 4 million workers was put on hold by a federal judge weeks after the election. The Trump administration could – and probably will – withdraw any defense of the rule in court, effectively killing it.


“We’re going to build a wall. I could wait about a year and a half until we finish our negotiations with Mexico, which will start immediately after we get to office. But I don’t want to wait…Mexico in some form, and there are many different forms, will reimburse us...”

Donald Trump, at a January 2017 press conference

IMMIGRATION

From the outset of his campaign, Trump made significantly tighter immigration policy a prominent focal point. He characterized immigrants as criminals threatening American safety and security and a drain on the U.S. economy. And he accused those from other nations of stealing American jobs and depressing U.S. wages. From building an impenetrable wall on the Mexican border, to mass deportations of millions of undocumented immigrants, to an entry ban on Muslims (scaled back to “extreme vetting” and a moratorium on immigration from countries with a recent history of terrorism), Trump promised to make rigid protection of the border a top priority. He has signaled openness to accepting only immigrants who can establish that they possess skills in insufficient supply among American workers.

Since the election, Trump has wavered on some of his proposals. His choice for attorney general, Alabama Senator Jeff Sessions, is a leading critic of both legal and illegal immigration. The road ahead, however, promises sharp clashes between Trump’s populist – even nativist – anti-immigrant positions and the vital role that immigrants continue to play in the U.S. economy. Trump will likely push hard for increased enforcement of immigration laws and additional measures aimed at combatting illegal immigration.


Andy PuzderLabor Secretary

Nominee

Jeff SessionsAttorney General

Nominee

Ending the Obama administration’s policy of deferred action on deportation for certain undocumented immigrants, which was implemented by executive directive, can be accomplished with the stroke of a pen.

A key immigration policy battle for industry will be over changes to the H-1B visa program. This mechanism was designed to permit a limited number of high-skilled workers – especially scientists, engineers and computer programmers – temporarily into the United States when businesses certify a shortage of qualified American workers. But critics – including Sessions and, at times, Trump – have argued that the system has been abused as a way to replace American workers with cheaper foreign labor. Businesses, particularly in the technology field, point to a gap in the U.S. labor force in science, technology, engineering and mathematics (STEM) skills and argue that firms in these fields will locate operations elsewhere – ultimately hurting U.S. jobs – if access to needed immigrant workers is curtailed. Trump has acknowledged that he could welcome skilled immigrants, but he also has vowed to end H-1B as a “cheap labor program” and strengthen requirements to hire American workers first. While reforms to protect U.S. workers could find support on both sides of the aisle in Congress, the influence of industries that rely on immigrant workers to maintain operations in the United States could obstruct substantial changes in this program.

Another potential point of significant conflict between the Trump administration and state and local officials concerns the status of so-called “sanctuary cities” – jurisdictions that have refused to offer local resources to assist federal enforcement of immigration laws. Trump and conservative Republicans have vowed to crack down on sanctuary cities, which could mean withholding federal funding (whether limited to law enforcement or homeland security grants or broader funding) or bringing lawsuits to compel local officials to help identify, detain and deport undocumented immigrants. Such moves could spark protracted and expensive legal battles, however, as state and local leaders from large and Democratic-leaning states like California, Illinois and New York, among others, already have promised to resist supporting anti-immigrant policies.

BUILDING A WALL

Funding to build a wall on the Mexican border would require an act of Congress. Trump recently acknowledged that U.S. taxpayers might have to advance the costs of building such a wall, but he expects to recoup them from Mexico by threatening to restrict money transfers there, cancel visas for Mexican nationals, impose tariffs on Mexican imports or increase fees on visas and border crossing cards. As popular as the wall has been among Trump’s political base, however, even congressional Republicans might balk at appropriating the roughly $10 billion that construction has been estimated to cost.


THE OUTLOOK

The Trump administration will present one of the most challenging political and economic environments to navigate in generations, creating both significant opportunities and risks for U.S. and global companies. Rolling back regulations and pushing the economy forward will be the key pillars of the new administration.

Trump’s efforts will be undertaken against the backdrop of a deeply divided electorate, characterized by great mistrust in its government and continued anger over income inequality and stagnant wages. At the polls in November, the American electorate voted for change. While voters have put in place Republican leadership at both ends of Pennsylvania Avenue, Trump enters office with the lowest popularity ratings for a new president in modern times. Trump supporters are optimistically looking to the new president to follow through on his pledges to help them find new – or better – jobs and address flat wages and economic inequality. But other voters are facing the next four years with deep anxiety about the country’s direction and the stability of its leadership.

There will be occasions when Trump takes positions that are contrary to those of Republicans in Congress, and vice versa. Showing little patience for many of the details of governing, Trump may assume a White House management style that articulates a broad philosophy and generally leaves the execution of those views to his staff and Republican leaders. And depending on the issue and his approach, Trump may also find Democratic allies across the aisle. However, just as Republicans were able to obstruct Obama’s agenda at key moments, Democrats will have the ability to use the filibuster requirement of a 60-vote supermajority in the Senate to block


significant legislation. At the same time, from his first days in office, Trump will not be shy to use the power of his pen to wield authority through executive orders, rolling back those of his predecessor and introducing those of his own.

Businesses hoping to stay above the political fray may find themselves drawn in anyway because of Trump’s willingness to attack companies seemingly without provocation. No business decision has been too small to grab the president’s attention prior to the inauguration, and companies have started to experiment with the best ways to push back. Rising above the fray requires that senior executives be agile – adapting to the new landscape and getting ready to respond quickly – to protect and defend their company’s interests.

The roller coaster ride is just beginning.


POLITICAL AND INTERNATIONAL EVENTS TO WATCH IN 2017

Jan 20 Inauguration of Donald J. Trump as the 45th President of the United States

Jan 25-27 House and Senate Republicans joint retreat to Philadelphia

Jan 31 - Feb 1 Federal Reserve’s Federal Open Markets Committee meets

Feb 6 Deadline for White House to submit 2018 fiscal year budget to Congress

Feb 22-25 The Conservative Political Action Conference

Feb 23-26 A new Democratic Party chair will be elected during the Democratic National Committee’s winter meeting in Atlanta

Mar 14-15 Federal Reserve’s Federal Open Markets Committee meets

Mar 16 The U.S. debt limit has been suspended until 12:01 a.m.

Mar 30 The United Kingdom has set as a deadline to begin formal withdrawal from the EU

Apr 1 Senate Budget Committee reports concurrent resolution on the budget

Apr 15 Congress completes action on the concurrent resolution on the budget

Apr 21-23 Spring Meetings of the World Bank Group and the International Monetary Fund in Washington

Apr 28 The Continuing Resolution funding the federal government expires

Apr 29 Trump’s 100th day in office

May 2-3 Federal Reserve’s Federal Open Markets Committee meets

May 15 Annual appropriations process begins in Congress

May 26 Leaders of the G7 meet in Sicily

Jun 13-14 Federal Reserve’s Federal Open Markets Committee meets

Jul 7 G20 Summit in Hamburg, Germany

Jul 25-26 Federal Reserve’s Federal Open Markets Committee meets

Sep 19-20 Federal Reserve’s Federal Open Markets Committee meets

Oct 13-15 Annual Meetings of the World Bank Group and the International Monetary Fund in Washington

Oc 31 - Nov 1 Federal Reserve’s Federal Open Markets Committee meets

Nov 5-11 APEC Summit in Vietnam

Dec 12-13 Federal Reserve’s Federal Open Markets Committee meets

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Abu Dhabi 1st floor, Office 27, Blue BuildingTwofour54, Abu DhabiP.O. Box 77842United Arab Emirates

Beijing20th Floor, East Tower, Twin TowersB-12 Jian Guo Men Wai AvenueChaoyang DistrictBeijing 100022 PRC

Dubai26th Floor, Office 2604, Tower-B, Business Central TowersDubai Media CityDubaiP.O. Box 74021United Arab Emirates

Hong Kong501Henley Building5 Queen’s Road Central, CentralHong Kong

Los Angeles6300 Wilshire Boulevard10th FloorLos Angeles, CA 90048United States

MoscowOlimpiysky Prospect 16Str. 5 3rd FloorMoscow129110Russia

Singapore50Scotts Rd, #02-01228242Singapore

TokyoExecutive Centre6-2-31 RoppongiRoppongi Hills North TowerLevel 17Minato-kuTokyo 106-0032Japan

www.finsbury.com

Hering SchuppenerBerlinAm Kupfergraben 410117 Berlin

Brussels133 Rue Froissart1040 Brussels

DüsseldorfBerliner Allee 4440212 Düsseldorf

Frankfurt am MainMainzer Landstr. 4160329 Frankfurt am Main

www.heringschuppener.com

Finsbury and Hering Schuppener have formed a global partnership, creating a new force in strategic communications.


Finsbury is a global leader in corporate, financial and crisis communications, litigation support, public affairs and stakeholder engagement. We help clients communicate with clarity and impact during times of opportunity, change, uncertainty and crisis.

Stephen Labaton President, U.S. +1.646.805.2042 [email protected]

Amb. Miriam Sapiro Partner & Head of Washington Office +1.646.805.2083 [email protected]

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