The Trump victory: four downsides and one upside
Published November 10th, 2016
Like most businesses with an internationalist outlook, Global Water Intelligence wasn’t celebrating Donald Trump’s election victory this week. Instead, we have been calculating what it means for water. Here are our thoughts:
1) Regulations: Although Trump promised to scrap the Environmental Protection Agency (or the Department of Environmental Protection as he called it), this is easier said than done. Much of the agency’s work is defined by the Clean Water Acts, and unless Trump intends to scrap those, he will need the EPA. Trump’s main priority in the environment area appears to be pushing back some of Obama’s commitments on climate change, and he may not have the political capital to push beyond that. Our expectation is therefore that most of the regulatory change from a water perspective will involve scrapping some of the wastewater treatment requirements for coal-fired power stations, and giving states a greater say in the interpretation of the requirements of the Clean Water Acts.
2) Finance: On the campaign trail, Trump made a number of mutually incompatible promises, such as a major shake-up of the tax system, a massive boost to infrastructure spending, and “winning” at trade against the United States’ largest creditor, China. One suspects that there will be no coherent grand plan which would either open up the market for private finance nor squeeze it out by flooding the country with federal grants. Instead, the current messy situation will continue, with municipalities that are increasingly weighed down by pension fund commitments looking for creative solutions.
3) Industry: It is difficult not to be skeptical about the chances of there being a renaissance in America’s manufacturing industry as a result of Trump’s efforts to make America great again. The whole corporate sector is so thoroughly oriented towards global markets that any government-led attempt to force economic self-sufficiency onto it is likely to meet with either resistance or recession. A bigger worry than the Trump presidency is the overall softening of the global economy. There has been a nasty spate of profit warnings this fall, which suggests a greater weakness than has yet been acknowledged in the economic data. On a more cynical note, there may be some upside for the oil price (and therefore the domestic oil and gas industry), as Trump realigns America’s regional alliances in the Middle East.
4) Investment: the message for fund managers is to sell equipment stocks and buy utility stocks – at least in the short term. Companies like American Water and Aqua America have no overseas exposure which might get caught up in a trade war, and at least they offer some sort of yield when the outlook for interest rates has switched to negative once again. Equipment stocks, meanwhile, might lose out from looser regulation and increased tariff barriers. In the longer term, utility stocks might be adversely affected by inflation resulting from the imposition of trade barriers.
5) International: The big test is going to come with Iran. This is an important new market for water companies, with both European and Asian governments backing trade missions and assembling financing facilities to accelerate access to the market. Meanwhile, US banking sanctions remain firmly in place (GWI had its accounts frozen last month when the New York branch of our bank discovered we had staged the Iranian Water Summit). If Trump tries to re-impose sanctions on Iran, it is very unlikely that America will carry the rest of the world with it. This could be the beginning of the end of American foreign policy dominance. It has implications for the US-backed globalist institutions such as the World Bank, the International Monetary Fund, and the United Nations, whose objectives and impartiality now stand at odds with America’s official policy. It is a big break for the Asian Infrastructure Investment Bank, which was set up by the Chinese government in order to challenge the dominance of the Washington-based financial institutions.