Shares of Apple are currently trading at an all time high, in a bull market rally that recently-elected U.S. President Trump has frequently taken credit for. However, stock market gains--including Apple's--appear to driven primarily by favorable earnings reports from the December quarter. The economic future of Apple--and the U.S. overall--is less certain, given risks related to infrastructure investment, taxes, currency valuations, immigration restrictions and travel bans under the new administration.
Infrastructure in Apple's backyard
Trump campaigned on the idea of "Making America Great Again," including commitments to rebuild the nation's crumbling transportation infrastructure and return jobs to the manufacturing Rust Belt and coal country.
However, rather than focusing on building Congressional support for a meaningful infrastructure plan, the Trump administration's first significant action on transportation has been to put a hold on funds already approved for the electrification of Caltrain, Silicon Valley's commuter rail link that connects San Francisco to San Jose, providing service to commuters at Google, Facebook and Apple's Cupertino, Sunnyvale and Santa Clara sites. Apple's new Campus 2 project was designed to include transit support for commuters, including busses to nearby Caltrain stations.
Caltrain ridership is at an all time high. Its modernization program includes upgrading trains from diesel to electric service in order to enable cleaner running, faster accelerating trains that can accommodate more riders at lower operating costs. Caltrain parallels the 101 and 280 freeways, providing an alternative to Silicon Valley's crippling rush hour traffic, so it also benefits those who have to drive.
Holding up federal funds has the immediate effect of delaying a project that was set to immediately begin contracting out construction work after many years of planning. Even if the funds are released later, this delay will greatly increase the future cost of the project, while also impacting economic growth and existing traffic in the Bay Area.
Earlier this month, Trump "lamented the lack of high-speed rail service" in the U.S. in speaking to airline executives, saying " You go to China, you go to Japan, they have fast trains all over the place... we don't have one fast train."
Plans for California High Speed Rail intend to eventually integrate with Caltrain to support HSR into San Francisco from Los Angeles, but completion of that system remains decades away. Delaying the immediate electrification of Caltrain makes no sense, even to parties opposed to the future HSR project.
In fact, delaying federal funds to improve Caltrain today will have the affect of releasing HSR funds already committed to the project, so those dollars will instead be diverted to build tracks in the middle of California that won't be of service anyone for many years (if ever).
Rather than accelerating the development of American infrastructure improvements, the Trump administration has bungled this ready-to-go project right out of that gate. That does not create confidence in the president's plans and ability to implement improvements in other areas.
Trump's travel ban did not play well in Silicon Valley
Aside from derailing investment in Caltrain, Trump policies so far have had a limited impact on Apple, apart from an executive order declaring a travel ban that threw the nations' airports and the routine business of international companies into uncertainty and chaos before federal judges struck the order down as unconstitutional.
Immediately after the ban was introduced, Apple's chief executive Tim Cook staunchly opposed the executive order, noting that, "more than any country in the world, this country is strong because of our immigrant background and our capacity and ability as people to welcome people from all kinds of backgrounds. That's what makes us special. We ought to pause and really think deeply through that."
Executives from Facebook, Google, Lyft, Netflix, Uber and Twitter also spoke out against the travel restrictions, which supposedly target countries at risk of terrorism without including Saudi Arabia, the United Arab Emirates and Egypt--the source of the majority of foreign terrorists who have killed Americans in 9/11, but notably also countries that do business with Trump's organization.
Outside of California's Silicon Valley, Amazon, Expedia and Microsoft also backed their Washington state attorney general suing Trump to stop enforcement of the ban. The rush to deploy such a disruptive measure affecting American businesses, and the executive order's poor implementation--which failed to even clearly define who would be affected--raise further doubts about the competence and capability of Trump's administration to change policies without introducing unnecessary chaos, and to achieve clear, successful results.
Other American industries had previously lodged comparable complaints against the Obama administration, notably the coal industry impacted by pollution rules Obama put in place. However, while eastern coal mining was impacted by those rules targeting coal burning power plants, the viability of coal mines were already being buried by the shift to cleaner natural gas unlocked by new fracking techniques. Obama also challenged the unrestricted development of new reserves on public lands and opposed the approval of the Canadian Keystone XL and the Dakota Access pipeline.
Trump has come out against Obama in all respects, calling for a return of coal digging and for the approval of natural gas pipelines. However, cheap oil from Canada isn't going to make coal fired plants economically attractive again. A year ago, depressed oil prices were also blamed for the stock market retreat that affected a variety of industries, notably including Apple. By aggressively seeking to overturn policies put in place by Obama without much consideration of potential side effects, Trump is creating uncertainty in the market that will likely result in serious problems down the line.
Will a foreign tax holiday survive Trump?
The largest positive financial impact that Trump's intended agenda is thought to potentially have on Apple is a plan to enable the repatriation of foreign earnings into the U.S. at a much lower rate. Cook has frequently complained about problems in the U.S. tax code, in particular the country's high tax on foreign earnings, which is not required to be paid if the funds remain invested overseas. That's a strong disincentive for American firms to use their foreign profits to pay for domestic investment. It's simply bad for the U.S.
In a 2015 interview with Charlie Rose, Cook said of Apple's foreign earnings, "It would cost me 40 percent to bring it home, and I don't think that's a reasonable thing to do. This is a tax code, Charlie, that was made for the industrial age, not the digital age. It's backwards. It's awful for America. It should have been fixed many years ago. It's past time to get it done."
Earlier that year, Apple's then-chief financial officer Peter Oppenheimer had expressed the same thing during an earnings call, noting that Apple has "expressed our views to Congress and the White House."
At the time, the Obama Administration pushed back, indicating a clear lack of interest for a tax holiday. However, legislators in Congress (who actually draft and pass tax laws) in both parties have been pushing for years to launch a tax break that would incentivize American companies with overseas holdings to bring their foreign cash into the U.S. A recent effort was launched by Democratic Senator Kay Hagan of North Carolina and Republican Senator John McCain of Arizona.
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