Squawk Box and Collection Box: A Dangerous Combination
By Ryan Bhandari
President-elect Trump has a knack for tweeting exactly what’s on his mind, like no politician before him. This may suit his desire to disrupt the establishment, but it has very real, negative implications for financial markets and the integrity of his administration.
Trump has been using Twitter as a squawk box: to publicly shame companies he says are ripping off the government (whether or not he has any evidence) and send their stock prices tumbling. Boeing was the first to find themselves in Trump’s crosshairs when he tweeted:
Shares of Boeing dropped $2 immediately following the tweet. By the end of the day, Boeing shares had rebounded, but not before rattling investors, workers, and customers of the airplane manufacturer.
A few days later, Trump laid into Lockheed Martin and the F-35 program:
Shares of Lockheed Martin dropped 4% following the tweet before recovering to down 2% at the end of the day. Trump is hardly the first person to criticize the F-35 program. The program has come in billions over budget, but the plane was declared combat-ready in August, and NATO allies have already placed their orders. Trump can’t do anything about the costs of the F-35 as nearly all of the R&D has been completed, but he can certainly agitate markets and cause Lockheed’s stock to take a nosedive for no justifiable reason. Apparently, Trump is content doing just that:
Voters may be happy that Trump is jawboning companies to come in cheaper for their government contracts, but do we really want our President to be constantly moving stock prices on a whim? And what is the implication for regular investors versus the most sophisticated ones who can trade on Trump tweets?
Trump is in uncharted waters, becoming the first President in memory to act as an “axe” that is willingly using the power of the presidency to move individual stock prices. By abusing this power, Trump is opening the door for insider trading. He can move markets with his fingers, and those close to him will be in a particularly beneficial position if they can gather insight into what the President-elect is going to say or tweet.
There is political theater to berating these companies on Twitter, but as President, Trump could also simply ask the Defense Department to change the structure of new contracts. It is possible, though, that Trump is flexing his muscle here to send a message to private companies that conduct business with the government: get on my good side. That’s even scarier.
Given the fact that the CEOs for Lockheed Martin and Boeing flew to Mar-a-Lago in Palm Beach for a meeting with the President-elect on December 21st, the message seems to have been received.
It stands to reason, then, that a government contractor looking to be in good standing with the President-elect might turn to the Trump Organization to curry favor. What’s to stop a government contractor — or any firm looking to benefit from government policy — from having its next conference at the Trump International Hotel in Washington, DC or the Mar-a-Lago? There are numerous other actions an individual company could conceivably undertake to protect itself from the abuse of Trump’s squawk box. And since foreign countries are already treating Trump hotels like a collection box to curry favor from the President-elect, why wouldn’t government contractors do the same, whether they’re looking for a new contract or just trying to stay on his good side?
As the world prepares to enter a new era with a one-of-a-kind President of the United States, the question remains: can Donald Trump control his impulse to publish, regardless of the consequences, every attack on an individual or a company that pops into his head? If he wants to avoid corruption and prove to the American people he has the right temperament to be President, he should show some restraint.
Ryan Bhandari is a policy advisor for the Economic Program at Third Way.
