OIDA’s Assessment of the U.S. Election
The U.S. presidential election this year had Americans and many others around the world glued to the television and Internet watching the results. The election is over, but the news remains filled with speculation over what happened on election day and what will happen in a Trump presidency.
If there is one word to summarize the post-election outlook, it’s “uncertainty.” There is the uncertainty over priorities and policies at the White House itself, but also what Congress will do, and what legal challenges may be brought through the judicial system. Will there be a massive stimulus and economic growth? A trade war and recession? A new cycle of gridlock and dysfunction? On one thing everyone agrees: this is uncharted territory in modern U.S. politics.
Candidate Trump was most consistent in his positions on U.S. isolationism: immigration, trade, and foreign partnerships. The topics of most interest to the optics and photonics industry fall under the category of technology and innovation policy. He has articulated few policy positions in this category, outside of taxes and trade. (For a list of the Trump campaign’s positions on technology and innovation policy, see this summary from the ITIF.)
There are many issues that could impact optics and photonics companies: corporate tax rates, repatriation of profits, R&D funding, H-1B visas for highly-skilled workers, trade agreements and tariffs, “Buy America” policies and penalties for offshore production, deregulation, and much more. While all companies would likely welcome a lower corporate tax rate, many policy changes would favor some companies while hurting others, depending on where they sit in the market. Over 90% of optics and photonics companies are small enterprises, but the large global companies earn over 80% of the revenue. The many small companies may have the most to gain, while the large companies that dominate revenue might see the most disruption. Some policy changes might simultaneously help and hurt companies that move their materials and parts around complex global supply chains, which is becoming more and more of our industry.
Is this like Brexit? This summer we wrote in the OIDA newsletter and OPN magazine about the U.K. Brexit vote, particularly with respect to European R&D funding, company location, recruiting talent, currency effects, and so forth. However, the implications of the Brexit decision—with the uncertainties it brings—are more identifiable and more localized to the U.K. and Europe. The Brexit decision is also likely to stay in place for years, even decades, and may weaken the European Union itself. The implications of the next U.S. presidential term seem greater in scale and scope (or at least for someone watching from inside the U.S. this week), but it is not a dissolution of the federation. There will be a mid-term congressional election in two years and voters will judge the new President two years after that.
The supertanker ship of state called the U.S. federal government doesn’t make sharp turns. Notwithstanding the many executive orders that the new President can sign on his first day in office, countless contracts are already in place, budgets take time to write and pass, and many executive orders and rule changes have to follow specific and careful procedures to become law. Seemingly simple changes in funding and policy have intricate and far-reaching ramifications that will face opposition from diverse and unexpected interest groups. Just understanding how to unwind policies and programs within the labyrinthine government apparatus takes insider expertise. Whether you think it’s bad or good, there will be substantial inertia and gridlock going forward, some of it by design and some due to the sheer scale of government and its role in everything in the economy.
It’s an axiom of market and technology forecasting that we tend to overestimate short term impacts and underestimate long term impacts. This rule may also apply to the impact of U.S. presidential elections. The shorter term dividends of a Trump presidency won’t likely be as large as Trump’s supporters hope, nor as dire as Clinton’s supporters fear. And the longer term consequences are, well, further down the road.
The advocacy efforts of OIDA and its partners in the community are more important than ever. OIDA will be monitoring the changes in Washington DC and advocating for our members where it is needed.
The long-term impact of the 2016 U.S. election will be significant, but the direct impact to the optics and photonics industry will take time to play out. In the meantime, it will be business as usual.
***** Primer for non-U.S. readers baffled by the U.S. Electoral College: The election on November 8 technically decided only the “electors,” who will vote in their respective states on separate ballots for President and Vice President on December 19. The electoral votes from each state are officially counted in a joint session of the new Congress on January 6. The new President will then be inaugurated on January 20. See here for more details.
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