Cincinnati companies could learn to like President Trump, unless he starts a trade war

Posted at 8:11 AM, Nov 10, 2016

CINCINNATI - A Southwest Ohio trade delegation visiting Brazil on Wednesday saw first hand how a Donald Trump presidency could negatively impact Cincinnati’s economy.

“They’re very concerned about this,” said Joe Dehner, a Frost Brown Todd attorney who joined officials from REDI Cincinnati and the Dayton Development Coalition on a business-prospecting trip for aerospace and automotive companies interested in U.S. expansion. Dehner said the investment bankers he met in Brazil are shocked by Trump’s rise.

And worried that he’ll start a trade war.

“Should they help their clients set up in the U.S. when Europe is much more friendly? It’s become a question overnight,” he said.

But what if President Trump were to pull back on his campaign rhetoric about new tariffs for China and a big wall on the Mexican border? Some experts say a more moderate Donald Trump could actually turn out well for Cincinnati companies.

“They would not benefit from a trade war,” said Miami University Professor Rich Hart. “But they would certainly benefit from lower corporate taxes and lower energy prices.”

Hart is a professor emeritus in economics who is one of House Speaker Paul Ryan’s intellectual mentors. Ryan distanced himself from Trump during the campaign, but at a press conference yesterday, the Wisconsin Republican said Trump “earned a mandate” in Tuesday’s election and he’s eager to work with the president-elect.

With Republican majorities in the House and Senate, Hart said Trump is in a position to cut corporate taxes, reduce regulations, replace Obamacare and fund an infrastructure program that could create jobs with a new Brent Spence Bridge.

“He’s going to end this war on fossil fuel,” Hart said. “Energy is one of the largest costs in the production of manufactured goods, second only to labor. If we can bring the cost of production down, I think it could help bring some of this manufacturing back home.”

And then there is the Affordable Care Act.

Trump said during his campaign that “his first executive order” would end Obamacare, Hart said. “That would be a boon to the economy because it frees up all this income. You’ve got middle-class Americans who don’t get Obama subsidies spending all their disposable income on premiums.”

Hart thinks it is possible that a Republican majority in Congress could enact an Obamacare alternative that covers catastrophic health problems while encouraging individuals to pay for their ongoing care with Health Savings Accounts.

Such an approach would “treat health care the way we treat car insurance,” Hart said. “It doesn’t pay for routine maintenance. It doesn’t pay for tires and oil changes. What (car) insurance pays for is the catastrophic stuff.”

Hart said the average annual economic growth rate during President Obama’s eight years in the White House was 1.3 percent, much lower than the 3.3 percent average in the decades since World War II. He argues the Affordable Care Act was “as responsible for sluggish growth as anything else that Obama has done.”

If Trump can increase the growth rate to 3 percent, Hart said the federal government could increase tax revenue, decrease the deficit and pay for infrastructure projects like the Brent Spence Bridge.

View from the executive suite

Cincinnati's biggest companies are tuned in to the changing of the guard in Washington. In a recent interview with CNBC, Procter & Gamble Co. CEO David Taylor said "tax and trade" were the policy issues that mattered most to him. 

“I think free trade is important for any company to have access to other markets,” he said, “and a tax code that allows us to compete effectively with many of our foreign domiciled competitors.”

P&G is one of several multinational companies keeping billions in foreign profits overseas - to avoid paying corporate taxes in the U.S.

RELATED: P&G's overseas stash climbs to $49 billion

In a recent Cincinnati appearance, General Electric Co. CEO Jeff Immelt said the company's growth here depends on its ability to sell jet engines around the world.

“I’m not here to make a political comment one way or the other,” Immelt said. “But I want our team to be proud. I want our community to be proud of the work that they do. We can make products here that can be sold in every corner of the world and take on every competitor and all comers, not just today but for a long time. If you look at a GE 90 engine that goes on a Boeing Triple 7, it’s designed here. It’s almost completely manufactured here.”

Wall Street reaction

Investors quickly grasped the potential of a Trump presidency on Wednesday as stocks in several industries rallied.

“Trump is pro defense spending, pro infrastructure spending,” said Jason Jackman, president and chief investment officer for Johnson Investment Counsel, Ohio’s largest independent money manager, with $8 billion in assets under management.

Jackman said “optimism around taxes” may have tempered the initial negative reaction by Wall Street to Trump’s electoral upset.

Dow Jones futures fell near 800 points when exit polls showed a Trump win was possible on Tuesday night. But the stock market turned positive Wednesday, as investors recognized potential benefits from a Trump White House.

Healthcare and financial stocks rose on expectations of reduced regulations. Defense and construction industry stocks rose with hope of increased government spending. Retail stocks gained on predictions of increased consumer spending. And interest rates on bonds jumped because investors now expect the federal deficit to grow under Trump.

Jackman said the fear of rising interest rates and inflation concerns drove utility stocks down Wednesday, while technology and consumer-product companies withered under the prospect of a future trade war.

“Trade policy and just some of the vagueness in his policies” are worrying investors, Jackman said. “What businesses like most is clarity. There is uncertainty on what’s campaign rhetoric versus what he’s actually going to pursue in policy and what can actually get passed.”

Here’s how some local stocks fared in Wednesday trading:

Kroger Co., up 4.5 percent to $32.39

Procter & Gamble Co., down 1.75 percent to $85.93

Macy’s Inc., up 1.35 percent to $38.28

Fifth Third Bancorp., up 6 percent to $22.95

American Financial Group Inc., up 1 percent to $77.15

Atricure Inc., up 3.7 percent to $18.17

Cintas Corp., up 1.76 percent to $107.49