Tonight, President Trump will deliver his first speech to a joint session of Congress. While it is not technically a State of the Union speech, it is Trump’s opportunity to set out his domestic spending and foreign policy priorities.
While he can recommend a Budget to congress (and will do so later in the spring), Congress is free to use or ignore as much of it as they want.
What does this mean for UK aerospace, defence, security and space companies?
Well, this speech is the starting gun on issues that will impact their global competitiveness, including defence spending, US corporate tax reform and Turmp’s ‘America First’ approach to world trade.
Here are five issues we’ll be looking out for in his speech:
- What kind of defence spending will Trump prioritise? We’ve already seen reports that Trump wants to increase defence spending by $54bn (10%). He has previously said that he wants to bolster conventional shortcomings, including, expanding the navy to 350 ships, adding additional man power for the army and marines.
- What, if anything, will the President say about NATO? Boosting defence spending by 10% will place additional pressure on European governments to ramp up their own defence spending. In the UK, defence spending remains protected despite Treasury Ministers ordering another round of cuts. Given this boost he is likely to ratchet up the rhetoric on EU countries paying their fair share.
- Will Trump signal support for a Border Adjustment Tax? The Republican Congress is in favour of comprehensive corporate tax reform, but it isn’t really clear how much Trump or other Congressional Republicans support Leader of the House Paul Ryan’s plans. One contentious issue is a Border Adjustment Tax that would put a 20% tax on any imported inputs used in US supply chains. The EU is already worried about this proposal, but how could this matter for UK companies? I summarised some of the potential impacts on Aerospace companies here:
— Jeegar Kakkad (@jeegarkakkad) February 27, 2017
- Will Trump set out the principles that will guide his ‘America First’ approach to world trade? We’ve already seen Trump abandon the Trans-Pacific Partnership (TPP) and question whether the US would abide by WTO rules. Many companies are looking to him to provide more certainty and consistency on how his administration will seek to implement the economic vision behind his ‘America First’ rhetoric.
- What tone does he take towards Congressional Republicans? The speech is intended to pave a political path for the party to deliver on its campaign promises. But Trump and Ryan disagree on some of the fundamental priorities, including on how much to boost defence spending, where the cuts should fall and the priorities for tax reform. These budget battles will have wider economic consequences, in particular on increasing the debt ceiling, as well as the path for inflation and interest rates. Trump will need Congress to deliver his plans, but is Congress willing?
We’ll provide a review tomorrow on the speech and what it could mean for UK companies.