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An Early, Early Look at Flyover Country Under the Donald Trump Presidency

January 3, 2017

The outlines of the implications for Flyover Country of the election results became evident pretty quickly to me: a new orientation in Washington, D.C., that would have tumultuous effects on the Heartland economy.

 

One week after the election, I gave a speech to the Association for Corporate Growth in Grand Rapids, Mich., where I shared my views. Even before the inauguration of Donald Trump later this month, this forecast is looking pretty prescient.

 

Here's what I said then:

 

--Exactly one week ago, the world was sitting on edge as it awaited the reactions of global financial markets to the election of Donald Trump as the 45th president of the United States.

 

--Hours earlier, as his victory had become apparent, futures markets swooned -- some even reaching their permitted intraday floors. It looked as though what some Cassandras had predicted, indeed would come true: The world would usher in the president-elect with a global stock meltdown.

 

--But you all know what happened in the next several hours. Once opened, the actual markets rallied, and the Dow Jones Industrial Average finished that day at a new record!

 

--These swings weren’t surprising, although their speed and magnitude might have been. Our own Michigan native Michael Moore said it best, and even predicted it would happen: Blue-collar America was going to give a big finger to the elites … and elect someone they thought would “drain the swamp” – and very possibly help their own financial situations.

 

--So here we are a week later, and the pendulum really does seem to have swung back to a less unsettling position.

 

--The CEO of GrubHub said that he would fire any employees who expressed support for Trump. But then he was told about something called the First Amendment, and suffered a social-media backlash -- and backed off.

 

--An executive of New Balance shoes expressed hope that a Trump presidency would move America “in the right direction,” and that sparked a social-media outrage among New Balance owners. But don’t be surprised to see New Balance sales pick up as Trump supporters rally to the brand.

 

--College students demonstrated in the streets in cities all over the country for a few days. Then they were reminded that their votes had counted as much as anyone else’s. Yet half of those arrested in Portland either didn’t vote in Oregon or weren’t registered; so how serious were they about this? And, oh, yes -- they had to return to class.

 

--Remember all those celebrities in Hollywood who promised they would leave the country if Trump were elected president? Well, so far, there are no moving vans being seen outside the homes of Cher … or Mylie Cyrus.

 

--Even Donald Trump himself contributed to the growing calm. He said he might keep some of the sensible parts of Obamacare. He underscored the fact that it’s illegal aliens who are criminals that he really wants to deport, not mothers and fathers and kids who are living productive lives. And apparently he told President Obama that he would honor America’s commitments to NATO.

 

--Heck, Trump even hired Reince Preibus as his chief of staff – the same Reince Preibus who headed the Republican National Committee … the same Reince Preibus who had promised that he wouldn’t let the Trump campaign take over the Republican Party apparatus if he won the nomination … and the same Reince Preibus who has argued in the past for comprehensive immigration reform. That Reince Preibus.

 

--So does all of that mean nothing changes for the American economy and business? That we can expect continued 1- to, at best, 2-percent growth ad infinitum? That we can expect no changes to the onerous regulatory regimes of the last eight years? That American manufacturers will keep moving jobs to Mexico without pause or penalty?

 

--Hardly. Remember that it was President Obama who in 2009, after his first victory, pointedly said, “We won” and that “elections have consequences.” They certainly did with him at the helm. And this election will, as well.

 

--I want to talk about two effects here. The most immediate effect of Trump’s victory is that it has vanquished uncertainty. Over the summer and into the fall, for my cover story for the November-December issue of Chief Executive, CEO after CEO -- many of them with middle-market companies like you -- would tell me that they were simply afraid of the uncertainties that were being created, not by a Trump presidency per se but by the very prospect of a Trump presidency. They didn’t necessarily like Hillary Clinton, but they knew what to expect from her.

 

--Of course, there was great irony in the fact that, here, one of the great figures of the progressive movement, an activist from way back who had learned at the feet of Sol Alinsky, someone who had authored an attempted government takeover of health care – remember Hillarycare? – 20 years before Obamacare, was somehow the presidential candidate who could provide solace to so many CEOs, simply because she was the devil they knew.

 

--Now these CEOs know they’ll have to deal with Trump for at least four years, and there is immeasurable power in just that certainty to pull them back from the cliff.

 

--Here’s another significant effect, the biggest effect: A Trump administration will take the fetters off the

economy and promote growth. When is the last time you heard anybody emphasize that?

 

--Over the last eight years, I’ve interviewed and talked with hundreds of CEOs, and the vast, vast majority kept telling me that they remained hesitant to put their company’s money into tangible business investments because they were just getting too many negative signals – from President Obama, from regulators in Washington, from consumers who were hesitant to open their pocketbooks in the face of employment uncertainty, and so on.

 

--Not only that, but because of high corporate tax rates in the US, many CEOs also were very reluctant to repatriate their companies’ profits. So hundreds of billions of dollars kept sitting in the digital version of Swiss bank vaults. With Trump’s promises to cut corporate tax rates – the carrot – and the stick he will wield that will discourage corporate investment outside of the US, much of that money will come home and be put to productive use in our economy.

 

--Time after time, CEOs told me that there was a 3- to 4-percent-growth economy just sitting on the sidelines waiting to get into the game with new business investment. An economy with double the growth rates we were stuck with, one that was just waiting to bust out. This money, too, will come into play in a big way.

 

--Remember the old-fashioned notion of “animal spirits” in the economy? It was a term coined by John Maynard Keynes, and he used it to describe human emotion that drives consumer confidence and other economic effects. Since Keynes, it’s also been used to describe the optimistic drive that motivates business owners and executives to invest, develop, hire – maybe even take chances – out of the conviction that a receptive and growing economy will reward their ideas and their endeavors.

 

--I expect those animal spirits to return to our economy in a big way. Business failures have risen over the last several years, and the number of startups has actually declined, and maybe this will be the beginning of a reversal of those trends.

 

--Actually, it’s remarkable how views of the Trump economy already have begun to change. The Wall Street Journal surveyed dozens of economists just a few days after the election. And though just a week earlier most of them – as well as the entire intellectual establishment, the news media, Hollywood, Silicon Valley and globalists around the world, not to mention the entire Democratic Party machine – were arrayed against Trump and also dismissive of him – history turned out differently than they had expected.

 

--And so the economists suddenly began to see things differently. Sure enough: By early this week, they already had collectively bumped their forecasts for 2018 up by one-quarter percentage point, and poll workers still aren’t done counting the election returns.

 

--Let’s look at some sectors, one by one, for some of the changes we can expect.

 

CONSTRUCTION: Trump has promised a trillion dollars in infrastructure spending. Now, of course, President Obama promised the same thing, through TARP, but all of that spending seemed to have very little actual impact on the nation’s crumbling roads, bridges, tunnels and airports. Because if it did, why would Hillary Clinton have made such an important plank in her own campaign about repairing the nation’s crumbling infrastructure? Besides, much of the TARP money never has been spent.

 

--So now Trump wants to make a priority of it. He says he wants to finance a lot of the improvements privately, so there’s some question here how much will actually get done. But certainly this will have to be a boon for anyone associated with construction.

 

--Also, any kind of uptick in economic growth in this country will probably serve to keep the housing boom going, further sparking construction investment and employment.

 

--Two negatives may emerge for those building things: some shortages of workers because of a crackdown on illegal immigrants. And if growth in a Trump economy prompts inflation and rising interest rates, that eventually could hurt construction spending.

 

HEALTH CARE: Again, both candidates recognized that Obamacare has become a debacle, and the timing of huge increases in Obamacare premiums in so many states right before the election was truly something to behold. It’s hard to believe that the Democrats couldn’t have found a way for those premium-increase notices to come out just a couple of weeks later.

 

--In any event, expect a President Trump and a Republican Congress to spend considerable time and resources unwinding Obamacare. Sure, they may keep pieces, such as protections for pre-existing conditions. But in the main, they’ll promote their own alternative based more on marketplace mechanisms.

 

ENERGY: Trump has said repeatedly that he’d like to see the Keystone Pipeline completed. He’ll also try to stop the deconstruction of our domestic coal industry. He will try as he can to reverse the obligations that President Obama made on behalf of this country to the global climate-change accord, although the United Nations and the president of France already have tut-tutted him that this would be impossible.

 

--Expect him to do whatever he can to encourage even greater domestic production of hydrocarbons; after all, this is a president who doesn’t take kindly to the perpetual American military presence in the Middle East.

 

--But also, marketplace forces are in play which mean that – to the great disappointment of his millions of supporters in coal country – the US coal industry will never return to its former greatness. Natural gas already has supplanted coal as the fuel of choice for many utilities and commercial uses because of how cheap and relatively clean it is, and that’s something that only will continue.

 

--Where it might get interesting is in “green” fuels. You can expect not to see major scams involving federal disbursements for clean energy under President Trump and the new Republican Congress. This doesn’t mean that electric cars, solar-powered homes and wind-powered factories won’t succeed in a Trump economy. But they’ll probably just have to make it on their own.

 

--Trump has said he believes that climate change is a “hoax.”

Yet the auto industry already has committed itself to switching over to electric and hydrogen and other forms of alternative energy for the future, no matter how inexpensive gasoline gets.

 

--What a President Trump may give the auto industry is more time and flexibility. So maybe he’ll give the automakers a little more breathing room on reaching emissions targets, for instance, after Obama set such a high bar that car companies have had to twist their product plans into pretzels to try to meet them.

 

--Discussion of autos brings us to MANUFACTURING, an area that we know well in Michigan, don’t we?

 

--The bald truth is that Trump’s opposition to the Trans Pacific Partnership, NAFTA and other “bad” trade agreements, that his promise to bring manufacturing jobs back to America, and to remember once again the “forgotten man” as embodied in frustrated and maybe jobless blue-collar workers, was one of the main reasons – perhaps the biggest – reason that Donald Trump won Michigan, Pennsylvania, Wisconsin, Ohio and maybe Iowa.

 

--But in general, it will be difficult for Trump to have as much impact as so many of his blue-collar voters had hoped. America has more manufacturing output than ever before, but it’s become highly automated. The line jobs with fat wages that fueled the growth of Michigan mainly aren’t coming back. There’s simply little that Trump can do, especially if he wants to follow a more-or-less free-market philosophy of governing.

 

--This is why one of the most significant shifts in the economy that he’ll likely bring about will be in trade. There is no telling where he may go with this. Fears run rampant that he will upset the global economy with a trade war.

 

--But a more sober view, and one that I believe is closer to how things will work out, was delivered this week by Holman Jenkins in the Wall Street Journal. As far as a “wall” with Mexico is concerned, he said, it “cannot spring up overnight,” giving Trump a chance to leverage its construction against changes in NAFTA that will be helpful to the United States.

 

--And as far as a “trade war” with China is concerned, Jenkins wrote, Trump “will be content with such trade-law cases … on steel and aluminum as are already progressing through the US and international-trade courts.”

 

--In order to deliver even a bit against his promises to manufacturing workers, President Trump certainly will insist on some kind of reworking of NAFTA. So maybe can slap tariffs on little Ford cars that are built in Mexico.

 

--That doesn’t translate into Ford giving up on its brand new plant there and shipping those jobs back to Michigan. But Trump may make it more difficult for Ford, and the many other automakers that ship cars out of Mexico to the US, to expand south of the border.

 

--It’s very interesting that within a day of the election, Dennis Williams, the president of the UAW, was singing an entirely different tune about Trump than before. Of course, the UAW, as always, endorsed the Democratic candidate for president.

 

--But in acknowledging that maybe one third or more of the union rank-and-file had ignored the leadership’s endorsement of Hillary Clinton for president – I’ll bet more than half of them voted for Trump, actually – Williams told a bunch of journalists that he actually welcomed Trump’s stance against NAFTA and was looking forward to working with the new president on changing it for the betterment of UAW members! “His position on trade is right on,” Williams said. What a remarkable turnaround!

 

--But there were other trends afoot in the electoral returns that are troubling the UAW as well. One of them is the continued rise of the right-to-work movement. Twenty-six states are right-to-work already, and the election tide toward Republicans probably means that a handful of others will flip to right-to-work in the years ahead.

 

--Michigan, of course, became a right-to-work state a few years ago. So far that hasn’t really meant much. But if UAW members start to turn against their leadership; and they see endangerment of their jobs as the auto industry slows down; and they see that these same leaders essentially sold out the promise of future jobs by going for big financial gains with the Big Three in 2015, at the sacrifice of all of America’s small-car jobs … the “right to work” might look a lot more inviting to these folks.

 

--Of course, one of the big negatives that the president-elect must face is the famous divisiveness of the campaign, and the aftermath of the campaign. You can expect it to continue to a great degree.

 

--The day after the election, for instance, one of my favorite humorists, Garrison Keillor, of Prairie Home Companion fame, reached back to his knee-jerk roots and wrote this in the Washington Post: “The Trumpers never expected their guy to actually win the thing, and that’s their problem now. ?They only wanted to whoop and yell, boo at the H-word, wear profane T-shirts, maybe grab a crotch or two, jump in the RV with a couple of six-packs and go out and shoot some spotted owls. It was pleasure enough for them just to know that they were driving us wild with dismay – by ‘us’ I mean librarians, children’s authors, yoga practitioners, Unitarians, bird-watchers, people who make their own pasta, opera-goers, the grammar police, people who keep books on their shelves – that bunch.” How’s that for slandering an entire group of people?

 

--But the identity politics that have been so in vogue for the last few decades did break down to some extent, didn’t they? Women, blacks, Hispanics, union members – all voted for Trump in bigger numbers, some in much bigger numbers, than the pundits had foreseen.

 

--I think we still may see identity struggles within the country, but maybe some of them will occur in new dimensions. One I’m watching is regional struggles that seem to be developing between Flyover Country and the coasts.

 

--Think about it: The four major power centers in America are Silicon Valley, for the digital technology that essentially is running our lives; Hollywood, for the entertainment culture that shapes our values; New York, for the finance and marketing that rule business; and of course Washington, D.C., where the increasingly powerful federal government and its bureaucracy reside.

 

--All are on the coasts. All are solidly in “blue” country. And in terms of reacting negatively to the reality of a Trump presidency, those four places are where the biggest complaints are still arising.

 

--This isn’t just a political phenomenon but also, and perhaps even more importantly, an economic one.

 

--Look only at the auto industry to understand why. Over the last couple of years, the entire focus of automakers has turned to self-driving cars. They’re clearly the future. And yet the leaders in forming the future of the automotive industry started out to be Google, Apple, Uber and other tech companies in Silicon Valley.

 

--Then, pretty suddenly, CEOs of traditional automotive companies got wise. Mary Barra of GM, Mark Fields of Ford, certainly Dieter Zetsche of Mercedes-Benz, and others – all of them got religion about automated driving. And they began seriously mounting their own companies’ efforts to take the lead from the digital-tech giants, leveraging their tremendous head starts in actually understanding what it takes to design, build and deliver an automobile.

 

--Sure, the software kingpins like Tesla have had some things to say. But it’s already become apparent that the traditional auto industry has struck back against Silicon Valley in a big way. Clearly, Apple has retreated, now planning just a software platform for an autonomous automobile – not the whole darn thing. They realized that would be too … difficult for them. There are signs that Google has retreated, too, from its plans to do more than just supply the self-driving brains to actual automakers who will build the car.

 

--Meanwhile, GM is buying a ride-sharing company and Ford is promising a self-driven automobile by 2025. Without Google or Apple to help.

 

--And so now the mega-battle is on for the future of locomotion between Detroit, and other traditional centers of the auto industry, and Silicon Valley. They’re building testing centers in California and running little driverless cars around Google headquarters; we’ve got MCity in Ann Arbor and we’re building another big testing ground at the old Wixom airport.

 

--They’re tapping into the software whizzes who already are attracted to Silicon Valley; we’re trying to get our math and engineering geniuses to stay here. The regional tension has divided even companies themselves, as both GM and Ford expand their presences in Silicon Valley while they also try to do as much of their software work at home as they can. Even the Michigan state government seems to realize what’s at stake.

 

--If you think this tension between Silicon Valley and Flyover Country is only active in the auto industry, then consider also what’s going on in the processed-food industry. The Midwest used to be the undisputed champion of the food business, with big and proud brands ranging from Kellogg to General Mills, Kraft to Heinz, Oscar Mayer to Hormel.

 

--But as Americans’ appetites increasingly have shifted to better-for-you foods and beverages, where do you think most of the creative startups feeding this appetite are popping up? New York City is one place. Southern California is a tremendous entrepreneurial enclave for healthy-food startups.

 

--And believe it or not, Silicon Valley has become one as well. General Mills acquired Annie’s Homegrown in 2014 for $820 million so the traditional prepared-food giant, based in the Twin Cities, could finally get a handle on the organic foods market. Where is Annie’s headquartered? Berkeley, California.

 

--So you see that in one arena after another, we need to fortify our home region, Flyover Country, so that we remain relevant and even dominant in important areas of the economy -- for our own good.

 

--This isn’t only an us-versus-them dynamic. But if we don’t strengthen our economic base in Flyover Country, particularly in areas that we used to own, we could fade into irrelevance, whoever is president.

 

--Coincidentally to my topic today, these trends are the reason that, five years ago I conceived of a not-for-profit organization called the Flyover Coalition, that would highlight the economic, social and cultural achievements and attributes of Flyover Country in areas that matter, including in these four coastal power centers: in the national news media, in the entertainment media, in the marketing industry, and in the seat of federal government.

 

--And if you would be interested in the Flyover Coalition, I’ve left information about it on the table in the back for you to take with you.

 

--So thanks for having me give a bit of a preview of what the Trump Economy will be like. All that happens may not be “beautiful,” but it’s going to be “h-yuge!”

 

 

 

 

 

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