While we can’t be certain whether the immediate financial-market reactions to his election will continue for the length of a Trump presidency, we think that some of the policies proposed by the incoming administration give even more reasons than ever to make sure that your investments are aligned with your values.
Last week, in Part One, we posted on proposed changes to the tax code; yesterday, in Part Two, we wrote about probable impacts on international trade. Today, in Part Three of this five-part series: Regulation.
3: Removing Regulations
Trump has long promised that he would reduce the “regulatory burden” on American business, “driven by a belief that the economy will grow faster if businesses are freed from the long arm of the federal government”. He may find it difficult to accomplish, but he has said that he wants to work by a new rule: “for every one new regulation, two old regulations must be eliminated”. He has promised to loosen the rules for Wall Street, for example by repealing Dodd-Frank and by delaying — and ultimately cancelling — the Department of Labor’s impending “fiduciary rule” for brokers. Calling the FDA the “Food Police”, Trump has implied that he wants to roll back food safety regulations, and lighten the regulatory burden on pharmaceutical companies. And he is clearly attempting to “dismantle US environmental law”, in his repeated promises to abolish the Environmental Protection Agency, remove the Obama administration’s “Clean Power Plan”, and leave the COP-21 Paris Agreement.
Naturally, it’s not hard to find conservative economists and politicians who argue that cutting regulations is pretty much always a good idea; neither is it difficult to find liberals to argue in favor of government regulation. But we can look at just a few examples of the kind of regulation Trump appears to be targeting, and see that not every regulation is unnecessary, much less harmful. Take Dodd-Frank: One important part of that financial-industry-regulating law is the creation of the “Consumer Financial Protection Bureau”, specifically targeted by the Trump campaign earlier this year. But it was the CFPB that was able to investigate Wells Fargo, and fine them “$100 million for opening fake accounts in customers’ names”. Even some conservatives argue that the CFPB is important to the continued health of the American financial system. Pharmaceutical companies are initially “breathing a sigh of relief” at the idea of reduced FDA regulation of their industry, there may be other reasons for them to be concerned, including increased competition from foreign companies. On the other hand, Trump has already “rolled back” his calls to do away with the FDA’s food-safety regulations, without explanation. As for the EPA, the Clean Power Plan, and the Paris Agreement … we’ll come back to that in Part Four.
It’s hard to know quite how much of his anti-regulatory stance Trump could accomplish. Some of the changes that it appears he wants to make could be done with simple executive orders; others will require the participation of the federal agencies involved; still others would require legislative action. But all are likely to be more difficult than Trump imagines, and all can be opposed by active citizens. Interestingly, since the justification being offered by Trump for removing the layers of regulation is to get the economy to grow faster by reducing the burden on corporations, there is also room for us to urge the corporations that we own in our portfolio to speak up — if the regional or local banks in our portfolios are happy with the structures imposed by Dodd-Frank, since they’re “thriving” in this regulatory environment and would rather keep those than face some uncertain new future, we can help encourage them to lobby on behalf of the law! We are looking for opportunities to participate in shareholder advocacy efforts that are designed to retain and strengthen productive business regulation; let us know if you are interested in participating in these efforts.
Next — Part 4: Environmental Issues