The Trump Cabinet: Bracing for a Bumpy Transition

Donald Trump is already more than halfway through his cabinet picks and so far, the anti-establishment candidate has once again divided public opinion and provoked his critics with an interesting mix of nominees. If Trump’s strategy was to appease the Republican core, while at the same time “comforting” Wall Street investors, he’s succeeded. However, as we examine how these nominations tally with the promises of the Trump campaign, it becomes apparent that a volatile transitional phase lies ahead.

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Wall Street veterans at the helm

The President-elect’s choice of hedge fund manager and Hollywood movie producer, Steven Mnuchin, to be the next Treasury Secretary triggered a polarized reaction, with markets welcoming the nomination of the former Goldman Sachs executive and critics raising concerns about his record.

Mr. Mnuchin, who also served as Trump’s campaign finance chairman, said his top priorities would be to stimulate economic growth and job creation through tax cuts and a relaxation of post-2008 financial regulations. Many of Trump’s opponents were quick to juxtapose Mnuchin’s nomination with Trump’s campaign rhetoric, as he often criticized Wall street executives for “robbing” the working class, and attacked Hillary Clinton for being too “cozy” with them. If confirmed, the new Treasury Secretary would oversee the U.S. tax and financial system, and have an active role in dismantling the Dodd-Frank act, one of Trump’s key campaign promises.

Trump did not have to look far for his pick for the department of commerce. Like Mnuchin, Mr. Wilburn Ross was a donor and an advisor to the Trump campaign and is known to have participated in setting up Trump’s 100-day action plan.

Mr. Ross, a former Democrat, is a billionaire investor and turnaround specialist, who ranks 232nd on 2016’s Forbes 400 list and has no prior government experience. Echoing Trump, Mr. Ross also believes the country must free itself from the “bondage” of “bad trade agreements,” and has advocated steep tariffs on Chinese goods, raising concerns over the fostering of a protectionist policy and trade-war scenarios.

In a similar vein, Trump nominated fast-food CEO Andrew Puzder to head the Labor Department, a stern opponent of minimum wage increases. Instead, he believes that reducing labor costs through reforming overtime pay and increasing automation will make firms more competitive. With movements like “Fight for 15” gaining traction, and tensions rising between executives and workers over wages and regulations, Puzder will be faced with key decisions that could prove decisive for the future of the US workforce and the economy as a whole.

Changing the system from within?

Other nominees also appear very much in line with Trump’s vision, such as Oklahoma Attorney General Scott Pruitt, chosen to be the head of the Environmental Protection Agency. Pruitt is known to be a fierce critic of the Obama administration’s climate agenda, and primarily the EPA’s Clean Power Plan, which he argued “is an unlawful attempt to expand federal bureaucrats’ authority over states’ energy economies”. Energy companies and automakers were pleased with this choice, hoping to be relieved from tight regulations on future mileage and emission targets.

Similarly, six-term Republican Representative Cathy McMorris Rodgers is Trump’s nominee to head the Department of Interior. She has provoked the ire of environmentalist groups, having backed plans to increase areas for oil and gas development as well as supported a provision ending the 1975 ban on the export of U.S. oil.

The same goes for Tom Price, nominated to head the Department of Health and Human Services, which is expected to spearhead Trump’s plan to repeal Obamacare. Price is a six-term Republican congressman from Georgia, vocally critical of state intervention in health care and eager to reduce his own department’s clout.

As for the post of Secretary of Housing and Urban Development, Trump opted for former Republican presidential candidate and retired surgeon, Ben Carson. A stark opponent of welfare and government-sponsored programs, Carson has attracted considerable criticism, focusing on his lack of political and managerial experience.

The nomination of retired Marine Corps General, James “Mad Dog” Mattis, as Secretary of Defense has also stirred speculation over the foreign policy direction of the Trump administration. Mattis was a fervent critic of the Obama administration’s Middle East policy and his nomination has been perceived as a signal that Trump intends to reverse the previous years’ increased reliance on US allies and coalitions.

Finally, the very much anticipated nomination for Secretary of State was finally revealed to be ExxonMobil CEO Rex Tillerson. Tillerson’s extensive overseas business experience, his relationships with foreign leaders, as well as his Russian ties, seem to have given him a decisive advantage. Back in 2011, ExxonMobil signed a deal with Rosneft, Russia’s largest state-owned oil company, and since then has collaborated on ten joint ventures in Russia. Two years later, Russian President Vladimir Putin awarded Tillerson the nation’s Order of Friendship.

Brace for turbulence and protect your assets

While markets are eagerly waiting for Trump’s next tweet and looking for clues for the next nominee announcements, it is important not to lose sight of the bigger picture: in any scenario, a bumpy and volatile transitional period lies ahead, after the inauguration on January 20th.

While many in the business community welcomed the prospect of a more hands-off government, tax cuts, and deregulation, Trump’s plans will not materialize overnight. His administration will likely face bureaucratic obstacles and fierce political opposition, that could force them to delay, negotiate and perhaps alter their plans.

Moreover, the new administration will also be faced with a structural, fundamental challenge, a ticking time bomb at the core of the US economy: a massive national debt of almost USD20 trillion. Trump’s promises of infrastructure and military spending, combined with across-the-board tax cuts, will only add to the already unsustainable debt burden.

Therefore, a responsible and pro-active financial plan should factor in all the “unknown unknowns” of the transitional period that lies ahead. All the open questions, the ongoing speculation, and various scenarios are strengthening the case for geographic diversification. For the time being, a solid defensive and conservative strategy continues to be the safest option in protecting your assets against unpredictable developments in the political arena and the global economy.

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