Obamacare, numerous regulations face Trump reversals

Kansas City Southern’s rail business into and out of Mexico made it a target for sellers in Wednesday’s market on concerns about President-elect Donald Trump’s trade policies.
Kansas City Southern’s rail business into and out of Mexico made it a target for sellers in Wednesday’s market on concerns about President-elect Donald Trump’s trade policies.

President-elect Donald Trump has vowed to overturn the Affordable Care Act on “day one” of his presidency. It’s unknown what he could do on his first day in office, but the health care industry is girded for major regulatory change, the first of many expected.

A Republican-majority Congress is expected to widely support Trump’s platform, which includes reducing personal and business taxes, repealing or significantly amending Dodd-Frank, and opposing the proposed Trans-Pacific Partnership trade treaty.

Worldwide financial markets, stunned overnight by Trump’s victory, dropped. The value of the U.S. dollar against other currencies fell, and the price of gold rose as a sign of global concerns. But U.S. stocks generally gained ground Wednesday, with the Dow Jones industrial average climbing 1.4 percent even as analysts predicted months of unsettled investor confidence ahead.

Trump’s fairly sketchy economic pronouncements during the campaign led to several warnings about slower economic growth, for example from Moody’s Oxford Economics, or even outright recession, such as from Citigroup.

Still, the next president’s agenda, including a pledge to eliminate two regulations for every new rule made, has been well received in many business circles.

“President-elect Trump’s platform has been all about less regulation and lowering corporate income tax rates, so most business owners we’ve heard from this morning are thinking optimistically,” said Dan Heckman, national investment consultant with US Bank in Kansas City. “Business owners feel more confident about adding additional people to the payroll if they’re less burdened with paperwork, and regulatory paperwork is the biggest complaint I hear from business owners.”

Some business owners also feel they’ve dodged a minimum wage bullet. No new federal minimum wage law is expected under a Trump administration. In locations where minimum wage issues were on state ballots, increases won broad support, and Trump had said during his campaign that he was “open” to such state-by-state action.

Employers in Arizona, Colorado and Maine must raise their minimum wages to $12 an hour by 2020, and the Washington state minimum goes to $13.50 an hour by 2020. Legislatures in California, New York, Oregon and the District of Columbia earlier this year also raised their minimums to $12 or more by 2020 — increases opposed by many small-business groups, which argued that some jobs would be eliminated to afford higher wages on those that remain.

The International Franchise Association was among business groups that immediately congratulated Trump and urged him to work with Congress to repeal “unnecessary, harmful and overly burdensome regulations, beginning with the newly broadened joint employer standard and the Department of Labor’s overtime rule.”

Federal overtime revisions to the Fair Labor Standards Act are scheduled to go into effect Dec. 1, and business surveys find that many employers are against the changes or are unprepared for them.

Trump’s campaign speeches also predicted upheaval at the Federal Reserve. He called for removal of Janet Yellen as chairwoman on the grounds that she is “not a Republican.”

The upheaval isn’t expected to stop a widely expected quarter-point interest rate hike by the Fed in December. The central bank may keep raising rates, according to some analysts.

In fact, Kansas City economist Chris Kuehl wrote in his Wednesday morning newsletter to clients that the Fed “is going to be preoccupied with its own survival and will play a reduced role as economic stimulator.”

Here are thumbnail sketches and sample reactions of some of the major business-related issues with Trump’s agenda.

Health care: Uncertainty about the future of the health care industry caused quick price dips in hospital company stocks and in related companies, such as Cerner, which provides health care technology services. Cerner closed Wednesday at $50.80, down $1.85 or 3.51 percent.

For now, “Obamacare” is the law, said Robert Reiff , president of Lockton Benefit Group, but he added that repeal seems inevitable. Employers are advised to continue with their compliance and reporting requirements until the ACA until it is abolished or an unspecified replacement plan is in effect.

Trump said he wants to replace the ACA with private health insurance plans that could be sold across state lines. Reiff noted that Trump and key Republicans favor allowing taxpayers to deduct their health insurance premium payments if they were not already paid on a pre-tax basis through employer-sponsored plans.

Possibly remaining in health insurance policies would be a prohibition on insurers’ restricting coverage for pre-existing conditions, a requirement of the ACA.

In a related health care issue, analysts expect a Trump administration to back off on price and import controls on drugs.

International trade: Trump’s trade policies — particularly as they target Mexico — hit one Kansas City company hard the morning after the election.

Shares of Kansas City Southern lost more than 10 percent of their value, falling $10.07, or 10.88 percent, on Wednesday to close at $82.48. The railway hauls cars from Mexican factories to U. S. markets, earning the Kansas City-based company the label of a bad Trump stock on the cable network CNBC on Election Day.

“Kansas City Southern got a lot of air time yesterday as a stock that might not react well to a Trump victory because of its exposure to Mexico,” analyst Jon Braatz of Kansas City Capital Associates said.

Trump has called for punitive tariffs of 35 percent on imports from Mexico and 45 percent from China. Those two nations account for about 30 percent of U.S. imports. By U.S. law, a president can impose a temporary tariff of up to 15 percent without Congressional approval.

Pat Ottensmeyer, CEO of Kansas City Southern, said less than 30 percent of the company’s traffic crosses the border and that goods move in both directions. Permanent tariffs that might disrupt trade would require Congressional action, he said, adding that many companies in addition to Kansas City Southern would expect a seat at the table before anything changes.

If Trump gains high tariffs, it would result in higher prices for U.S. consumers. It also could threaten the economy at large if other nations retaliate with tariffs on U.S. goods in a trade war.

The candidate’s campaign rhetoric opposed global trade deals such as the proposed TPP and the existing North American Free Trade Agreement, which he blamed for the loss of American jobs. As president, Trump will have the power to unilaterally withdraw from NAFTA after giving six months’ notice to Congress.

Such action “could seriously disrupt tightly integrated supply chains in North America, raising costs and impeding business,” according to a report from Douglas Porter, chief economist with BMO Capital Markets Economic Research.

Raj Bhala, an international trade expert at the University of Kansas School of Law, noted last week to a Kansas City group that big trade pacts like the TTP take years to be negotiated and involve multiple countries. He said most Americans favor free trade, and the nation’s trade history indicates that.

Corporate taxes: Trump and the Republican majorities in Congress are in complete agreement about tax reform. They want to cut taxes on the wealthy and on corporations, believing that spurs business and job growth, a policy that has been employed by Kansas Gov. Sam Brownback.

Trump also has given a nod to allowing U.S. companies to bring their foreign-made profits home at a lowered 10 percent tax rate.

Banking and financial markets: Trump has targeted the Dodd-Frank financial reforms that emerged from the financial crisis as one regulation especially onerous to the economy and worthy of elimination or at least a re-write. He’s noted the burden it places on smaller banks particularly, putting them at a competitive disadvantage to big banks.

“It’s so restrictive and difficult for community banks,” agreed Jack Brozman, vice chairman of Community First Bank in Kansas City, Kan., that is small in banking circles with $140 million in assets. “We do not have the base of operations to spread that additional compliance expense over.”

A Moody’s Investors Service report says a reduction in regulatory compliance costs “would bolster bank earnings” broadly, but “reduced oversight and a roll-back of requirements would also result in a weakening of banks’ capital and liquidity, a negative from a credit perspective.”

Overland Park-based Waddell & Reed Financial Inc. emerged as a good Trump stock over expectations the president-elect might reel in a Department of Labor regulation set to hit financial advisers in April.

The regulation applies a fiduciary duty standard to brokers’ dealings with clients’ retirement accounts; they have to act in the client’s best interests rather than simply ensuring a recommended investment is suitable to them.

Companies like Waddell & Reed have begun shifting fees and other practices on most accounts not just retirement accounts, often cutting into their profits.

Morningstar Inc. analyst Greggory Warren said Trump’s election increased the odds that the rule might be watered down and noted that Waddell & Reed shares surged 14.59 percent, up $2.29 to close at $17.99 Wednesday. He’s not sure the benefit for brokers will be that substantial if the rule is modified.

“A fair amount of damage already had been done,” Warren said, adding that firms aren’t likely to be able to restore fee structures they’ve already dropped.

Money managers who run hedge funds could be in a pinch if Trump delivers on a promise to end the so-called carried interest rule that taxes them at capital gains rates that are lower than income tax rates.

Environmental issues: As an avowed nonbeliever in climate change, Trump is expected to continue his campaign support of the fossil fuel industry, including coal, and put green initiatives on a back burner.

“We anticipate that President-elect Trump will provide support for oil and gas drilling and the coal industry as sources of high wage middle class jobs,” Jason Bennett, a Houston-based partner of the Baker Botts law firm, wrote in a note to clients.

Diane Stafford: 816-234-4359, @kcstarstafford

Mark Davis: 816-234-4372, @mdkcstar

Good and bad Trump stocks on Wednesday

▪ Sprint Corp. +13.4%

▪ Waddell & Reed +14.59%

▪ Cerner Corp. -3.51%

▪ Kansas City Southern -10.88%