America Exits The World

For all intents and purposes, Donald J. Trump will assume the presidency in January with no discernable policy agenda. Apart from a few signature flights of fancy, such as building a wall along 1,500 miles of southern border and rounding up 11 million immigrants for summary deportation, his policy pronouncements consisted largely of an ever-shifting farrago of ignorance, indifference, truculence, and personal animus boiled down into 140-character outbursts. As a general matter, we simply do not know what the Trump administration might do.

trumpGiven the enormity his election represents, speculating on the fallout for any particular industry could seem petty, if not beside the point entirely. But for what it’s worth, the media and technology industries may be among the first to feel the impact.

As a near-term matter, Trump said on the campaign trail that he would block AT&T’s pending merger with Time Warner and would look to undo already done media mergers, including Comcast’s acquisition of NBCUniversal. Setting aside the question of whether the Justice Department would have legal grounds to do either (and the perhaps more interesting question of whether a Trump Justice Department would feel constrained by established law and precedent), Trump’s rhetoric could cast a pall over M&A activity, just as the media industry seems poised for another round of it in the wake of AT&T-Time Warner.

Traditional media companies today are facing secular challenges across multiple fronts, from declining viewership and readership to increasing competition for advertising dollars from digital rivals, putting pressure on share prices. Ordinarily, that would be a recipe for consolidation, as CEOs seek solace in scale. If that route is blocked to them, they’ll have to think of something else.

Trump’s unorthodox campaign, conducted mostly through Twitter and free media, represents another challenge to media companies, particularly broadcasters, who have gotten fat in recent election cycles on a steady diet of ungoverned ad spending by campaigns and their super PAC allies. Trump spent less on paid advertising than any recent presidential campaign, by a large margin, putting a ding in the earnings of station groups. Yet he won. Future campaigns will no doubt take note.

Notwithstanding Trump’s hostility to the AT&T-Time Warner merger, telecommunications companies in general could be beneficiaries of a Trump presidency. As a candidate, Trump offered no coherent technology policy to speak of. But he’s expressed hostility toward the FCC’s net neutrality order in the past.

In 2014, Trump criticized President Obama’s endorsement of net neutrality, calling it an “attack on the internet” and another “top-down power grab.” Two years is two eternities in Trump-time, so who knows where he currently stands on the issue? But his transition team includes Jeffrey Eisenach, a former scholar at the Koch-funded think tank the American Enterprise Institute, who has been a vocal critic of the policies advanced by current FCC chairman Tom Wheeler, including net neutrality.

Eisenach is rumored to be a candidate to replace Wheeler in the chairman’s office. An Eisenach-led FCC might well open a new rulemaking proceeding to undo Wheeler’s reclassification of broadband access service as a Title II common carrier, which would curtail the agency’s authority to enforce key provisions of the current net neutrality rules, such as the ban on paid-prioritization of bits and the presumption against charging for last-mile interconnection.

That would be a boon to ISPs, but could hit over-the-top services hard if they’re forced to pay new tolls for delivery.

Oddly, though Eisenach is regarded as a free-market, anti-regulation zealot, eliminating net neutrality rules would create an incentive for media companies to seek tie-ups with telecom firms along the lines of AT&T-Time Warner. But if those are verboten the net effect would not be to “get the government out of the way” so much as to put its thumb on the other side of the scale.

The biggest impact from a Trump presidency, however, could result from his expressed desire to wall America off from the rest of the global economy, by abrogating trade agreements, raising tariffs, forcibly repatriating manufacturing and punishing companies that move it overseas, and restricting immigration.

The media and technology industries are among the most globalized in our economy. U.S. technology companies like Apple and Microsoft rely on a complex, global supply chain, stretching from rare-earth minerals in  Africa to manufacturing and assembly plants in China and Mexico to software coders in India. The manufacturing and assembly processes could plausibly be done in the U.S., albeit at a higher cost, but not all parts and raw materials could as easily be replaced from U.S. sources. Raising tariffs on those materials would be highly disruptive to the supply chain.

U.S. media and technology firms also depend crucially on access to foreign markets and capital. More than half of Google’s revenue comes from territories outside the U.S. Nearly two-thirds of U.S. movie box-office revenue came from outside the U.S. in 2015, and China is poised to become the biggest box-office nation in the world by 2018. Nearly 40 percent of Netflix’s streaming revenue came from outside the U.S. in its most recent fiscal quarter.

Moreover, many U.S. media and technology companies, such as Apple and Google, already have targets on their backs with European and other regulators. Any move by the U.S. to restrict trade with those countries would almost certainly be met by swift retaliation against U.S. firms.

Of course, tearing up multilateral treaties would not be as simple as Trump seems to believe. And he plainly has no idea what is actually contained in the trade agreements he rails against. But his anti-trade rhetoric will not make life easier for U.S. trade negotiators and they try to open foreign markets on behalf of U.S. technology companies or movie studios.

It’s a big old goofy world out there, Donald. And it’s the only one we’ve got.