Business Extra: What might Trump presidency mean for economy?

  • Donald Trump’s presidency may bring big changes to the economy. FILE PHOTO

Tuesday, January 17, 2017 6:47AM

How might Donald Trump’s election impact the Monadnock region’s economic landscape in the coming year?

We asked Minghua Li, Ph.D., assistant professor of economics at Franklin Pierce University, to comment.

Li earned her Ph.D. and master’s degrees in economics from the University of New Hampshire at Durham and her bachelor’s degree in economics from Nankai University at Tianjin, P. R. China. Her research interests include public, health and international economics.

Here are the questions we posed and her answers:

How will the new political climate affect businesses in our region? Manufacturing, health care/retirement/assisted living and construction are all significant employers in our area.

By and large, compared to some of our neighboring states such as Massachusetts, and the national average, our regional economy is relatively stable and has less volatility as measured by key economic indicators. However, President-elect Donald Trump’s proposed policy changes may still shape the local economic landscape in a distinctive way in the coming years, especially in the following areas:

Health Care and Pharmaceutical Industry

According to data released by U.S. Department of Health and Human Services, the uninsured rate in New Hampshire has fallen by 43 percent since the Affordable Care Act (aka Obamacare) was enacted in 2010, resulting in 63,000 people gaining coverage over the last six years.

Coverage improves access to health care and drugs resulting in an estimated 3,000 more people in the state getting needed health care and drugs. The health-care industry and drug companies benefited from the Affordable Care Act. More people bought insurance, and gained greater access to medical care and drugs. Trump promised to repeal President Barack Obama’s health-care law, which creates uncertainty regarding its replacement, the transition process and the outcome. Such repeal may reduce these health organizations’ customer base and reduce their revenues and profits.

Health care organizations are relatively large employers in this area and may be negatively affected by the new administration’s health care policies if more people lose coverage due to the repeal of the Obamacare. However, if the new replacement plan can maintain the current level of coverage or even expand it, then health care industry should continue expanding and prospering as the aging New Hampshire population is expected to demand and consume more health care.

Infrastructure and Economic Growth

Since Trump has vowed to be “the greatest jobs president that God ever created”, and he has promised a “trillion-dollar rebuilding program” as a way to creating jobs and stimulating economic growth, we can anticipate more spending on renovating existing and building new roads, bridges, power grids and communication infrastructure such as broadband in this region. Transportation in this region primarily relies on using private vehicles; rail transportation and local bus service in this region, as well as in New Hampshire, is quite limited. More scenic railroads and bus service offering rides to tourists would give tourists from eastern metropolitan areas easier access to the lakes and mountains in this region, boosting construction and tourism industries in this region. Investment in communication infrastructure would boost manufacturing and high-tech job growth in this region as well.

Better road systems, and more and convenient transportation systems would also allow many people to commute to work in this region. According to the most recently available federal data, the state’s Gross Domestic Product growth rate is 2.9 percent, among the highest in the nation. The promised new spending on infrastructure should further spur economic growth in the state including this region.

Energy and Environment Policies

The Trump administration is expected to increase energy production on federal lands, revive the coal industry, increase nuclear power production, and reduce subsidies to wind and solar industries. What will be the impact of these expected changes for this region? If these changes are to happen, we could see more abundant and affordable energy in the form of oil, coal and natural gas from a consumer’s perspective. Energy production is not a major industry in this area, so job growth is limited in this area. Solar industries will lose some competitiveness due to the reduction or elimination of government subsidies.

Although the plan to​ “unleash America’s $50 trillion in untapped shale, oil, and natural gas reserves, plus hundreds of years in clean coal reserves” could have short term benefits, including making the U.S. become energy independent, creating more jobs and lowering energy cost. However, strategically speaking, these actions could be myopic in the long run, as it is more cost-effective to import non-renewable energy from the international market while the world stock is still relatively abundant and cheaper. When the supply of non-renewable energy from the rest of the world is depleted, energy prices will increase substantially and it would be strategically more beneficial to tap into U.S. domestic energy reserves.

Unemployment Rate, Wages, and Inflation

According to the most recently available federal data, the unemployment rate was 2.4 percent for Cheshire county, 2.7 percent for New Hampshire, and 4.6 percent for the national average for November 2016. Here are unemployment rates for selected cities and towns in the region for November 2016:

Dublin Town 2.2%

Jaffrey Town 2.0%

Keene City 2.4%

Peterborough Town 1.9%

Rindge Town 3.4%

Swanzey Town 1.9%

The federal minimum wage has remained at $7.25 per hour since 2009, and the Democrats have been calling for a nationwide minimum wage of $15 per hour. Based on information from New Hampshire Economic and Labor Market Information Bureau, the entry level wage in NH is $10.40 per hour, mean wage is $22.53 per hour, and median wage is $17.74 per hour. Trump in late July 2016 mentioned a $10 hourly federal minimum wage. If the new administration imposes a minimum wage of $10 per hour, it may not have much impact for New Hampshire as its current entry wage level is already $10.40 per hour. However, wages may still continue to rise in this region due to the low unemployment rate and lack of in-migration in this region.

Many Americans living in small and rural areas have grown anxious about the wage stagnation. So this may be good news for these families as their household income may continue to rise. As a result, this should boost consumer demand of most products including the housing market in this region. However, for employers, especially for small business owners, this means higher labor costs which may, on one hand, hinder their business expansion, and on the other hand, translate into inflation as higher labor costs are passed on to consumers.

Although current annual inflation rate (from October 2015 to October 2016) is at 1.6 percent, big government spending in infrastructure, rising wages and strong consumer demands would all likely lead to higher inflation levels in the future.

Trade, Globalization, and Immigration

Trump said in a June 28, 2016, speech that “our politicians have aggressively pursued a policy of globalization—moving our jobs, our wealth and our factories to Mexico and overseas.” Trump largely rejects free trade and prefers to use tariffs to protect American industry from “unfair competition.” He firmly opposes the 12-nation Pacific trade deal, and also questions North American Free Trade Agreement, or NAFTA, which has been effective since 1994.

Most economists do believe that free trade could boost economic growth, threats of tariffs and trade protection could hurt American industries that depend on international supply chains, jeopardizing economic growth in the long term. Therefore, if Trump’s ultimate goal is to grow jobs, his actual trade policies may change or soften later. Since the economy in this region is relatively closed, trade and globalization policy would have minimal impact on this region.

Although there are 42 million immigrants living in the United States, and about one-fourth of them are here illegally, this region has few immigrants and even fewer illegal immigrants, therefore, his immigration policies would have little impact on this region.

However, in order to sustain current trend of economic growth, the state should encourage immigration or in-migration as a way to grow its labor force. From 1970 to 2000, New Hampshire experienced annual population growth in the 20 percent range, with the in-migration coming primarily from Massachusetts. That trend has stalled and population growth in New Hampshire is projected to be at 3.3 percent per year by 2020 unless the state takes steps to reverse the trend. The state’s low amount of in-migration and low unemployment rate make it hard for the state to sustain its economic growth. Therefore, the state should be encouraging immigration.

What effects have the election of past presidents (Obama, George W. Bush) had on the economic landscape?

The economy has its own business cycles with alternating peaks and troughs. Very often, presidents may have not much impact on it. However, each president does leave his own legacies. For President George W. Bush, his 2001 and 2003 tax cut, waging Iraq and Afghanistan wars, all resulted in large deficit spending and a significant increase of nearly $6 trillion to the national debt. For Obama, his stimulus plan-American Recovery and Reinvestment Act, and his signature health care law – the Affordable Care Act, also resulted in large deficit spending, and added another $8 trillion to the national debt.

Trump seems to be able to affect the stock market with a single tweet. How does this compare to past presidents’ effect on the market, and what are the potential consequences of this?

Trump’s election has started a new era of uncertainty and anxiety for business and investors due to his campaign pledges regarding trade, energy, health care, immigration policies, and lack of concrete details on each. For example, right after his winning of the election, stock prices of many health care companies went down due to his alleged repeal of Obamacare; in contrast, the election provided a clear bump for drug companies, due to his promise to relaxing regulation and speeding up new drug approval process. However, in his press conference this week, he made it clear that he would regulate the pharmaceutical industry for their price gouging, price fixing and collusion to hike up the drug prices and many drug companies saw their share price down after the press. Investors and stock market quickly react to his comments primarily due to the greater uncertainty and lack of details of his actual policies. Nevertheless, the U.S. is a democratic country governed by laws; the power is in check and balance by different government branches. Once his administration is fully established and his policies provide more transparency and more details, Trump’s tweets and comments should be less influential and consequential for the stock market.