Last week we ran an overview of what potential impact the U.S presidential candidates could have on the tech sector.
Now the election has come to a dramatic close and controversial candidate Donald Trump will soon hang up his coat in the White House, we look at what the experts think a Trump presidency means for technology.
An article from Technology Business Research by senior strategy consultant and principal analyst Geoff Woollacott and Tailored Servicers director Greg Richardson, says, “At a very high level, it can be argued the election split between states benefitting from technological innovation, such as California in Silicon Valley, and those that have not, such as Rust Belt states of Ohio, Wisconsin and Michigan.”
Woollacott and Richardson says Trump performed well in the states not benefitting from technology transformation, at least in part by pledging to return jobs to these economically challenged regions.
“The election of Donald Trump to be the 45th president of the United States caught pollsters and pundits by surprise. President-elect Trump is the first person to reach this point possessing no prior political or military experience since our nation’s founding, meaning there’s literally no historical precedent,” the analysts write.
According to Woollacott and Richardson, fulfilling that promise represents a tall order for any candidate or political party, and it has ‘very farreaching ramifications for the technology industry that has been the catalyst for the economic change this electoral mandate seeks to remediate’.
Several key policy assertions made on the campaign trail over the past 18 months appear to have significant implications — positive and negative — for the technology industry, they write.
Reduced corporate tax rates and cash repatriation incentives
✓ In simple economic terms, technology firms will have a greater profit pool to reinvest into their business or to distribute to their shareholders. If successful, a reduction in corporate tax rates from the 35% range to the 20% range could unleash an investment tsunami that drives gross domestic product (GDP) to the 3% to 4% level, which ultimately can put more cash in consumers’ pockets to drive retail IT investment (e.g., Walmart and Amazon).
✓ Such changes could lead to more profit from global technology enterprises repatriated back in the United States for job growth and expansion. This could spur a greater round of M&A activity in the United States, although skills gaps and regulatory uncertainty will be an offset.
✓ Enterprise customers will have more money to invest in digital transformation.
Bringing jobs back to America and more restrictive immigration policies
✗ Tariffs on overseas physical goods and intellectual property to protect U.S. employment could spur inflation. (Consider how oil price shocks contributed to the stagflation era of the 1970s.)
✗ U.S. technology goods could fall victim to retaliatory tariffs that could adversely impact many U.S.-based IT companies with large global footprints.
✗ Technology executives regularly cite a lack of qualified personnel to fulfil the knowledge-work jobs the industry’s innovation creates. Restrictive immigration reform could compel technology companies to place their innovation hubs in other countries with an ample labour pool of adequately trained individuals capable of fulfilling these jobs.
✓ The higher costs associated with foreign component parts could revive onshore chip foundries, although increased process automation will dampen the job growth impact these tariffs could engender.
Investing $1 trillion through the North American Energy Infrastructure Act
✓ While the details of the planned infrastructure investments are minimal at best, one can expect the words smart, connected and digital transformation will be part of the investment charter. This will open doors for companies on and in the information pathway, from the edge to the data center, to capitalise on government investments.
✓ As the United States’ infrastructure becomes increasingly digitized and connected, demand for cybersecurity solutions to protect critical components will rise, which can create opportunity for public sector IT suppliers such as Raytheon, Lockheed Martin and Northrup Grumman.
✗ The scale of these investments coupled with tight competition in high-growth tech areas will lead to fierce price competition for infrastructure-related solutions. This, along with cost pressures of an uncertain international trade environment, could pressure technology companies’ margins.
Adjusting and/or abandoning the Affordable Care Act (ACA)
✓ Any change to the reporting systems for large swaths of the U.S. economy will provide short term professional services opportunities to meet the regulatory changes.
✗ Demand for cost containment and increased operational efficiencies within the healthcare sector will proceed unabated regardless of what policy initiatives may flow from the new administration.
✓ Scientific research should continue without disruption.
✗ Sunk investments designed in compliance with the ACA will not be fully monetised as forecasted, which can adversely impact those integrators and outsourcers that have built practices to support this initiative.
Reduced emphasis on renewable energy and global warming research
✗ Technology investment in the data modelling and analytics engines studying climate change will be impinged upon by less government funding or fewer tax credits should this campaign promise materialise.
✗ The attractiveness to venture capital investors to back startups in the renewable energy space will diminish.
✓ The anticipated reacceleration of the United States’ investment in traditional energy sectors will inject revenue and open the door for capital and operational investments in transformational technology areas, such as the Internet of Things.
Policy uncertainty during the transition period
✗ Capital markets could freeze pending clarity on the regulatory and policy climate that will come from the Cabinet Mr. Trump assembles.
✗ Initial public offerings and M&A activity could slow pending clarity on the new administration’s policy initiatives.
✓ Tuck-in acquisitions of small companies could rise based on the target firms’ concerns over the long-term outlook in the transition.