This commentary originally appeared in the Hartford Courant.
The return of President Trump portends sweeping changes across many areas of economic policy, and those impacts will be felt by virtually every business sector and every region of the state.
In fact, even beyond Trump’s broad economic pledges of tax cuts, deregulation, and tariffs, and beyond the President-elect promises to repeal his own cap on state and local tax deductions (SALT); of distinct importance to Connecticut’s economy, in particular, there are five major sectors which are especially Trump sensitive and poised for massive disruption—defense, life sciences, fintech, advanced manufacturing, and education & workforce development—bringing both potential benefits and risk factors to watch out for.
Trump’s impact on Connecticut’s defense industry
Connecticut now has the highest concentration of defense and aerospace manufacturing in the U.S., with 135,000 total jobs and a total contribution of 9.54 percent to the state’s GDP exceeding over $10 billion annually. To say that Connecticut is one of the states most sensitive to government defense spending is an understatement. Connecticut has long been one of the largest beneficiaries of Pentagon contracting spending, receiving over $25 billion last year, the #4 state in the nation—and Connecticut now accounts for nearly one-half of General Dynamics’ and over one-third of RTX’s total DoD contracts.
Even beyond the controversy surrounding Secretary of Defense nominee Pete Hegseth, Trump has a long history of pitting defense companies against each other, getting involved personally to re-negotiate defense contracts through direct negotiations with CEOs (i.e. Air Force One/Boeing), and has pledged to reform the Pentagon contracting process. All of that could have dramatic effects on Connecticut’s economy.
Moving forward, Connecticut could face stiffer competition from red states for future Pentagon contracts, and our congressional delegation should be on high alert. Any such moves would be a continuation of recent trends, since the US Northeast has already seen its share of active military installations fall since 2005, with most of the gains going to the US southeast. Furthermore, there are some significant unappreciated possible tariff burdens Connecticut defense contractors may incur under the new Trump Administration as they are required to make significant purchases in all 27 NATO partner countries, which would lead to billions of dollars per company in extra costs—thus inadvertently adding to the tax burdens of defense companies. Connecticut congressional leaders can help flag those unanticipated challenges in advance of trade policy announcements to allow for wise strategic exemptions.
Trump’s disruptive impact on Connecticut’s life sciences innovation
Most of Connecticut’s life sciences companies are early-stage startups which focus on drug development. These companies work to cultivate promising, new drug candidates, working closely with the FDA to obtain approval for clinical trials. If these are successful, these startups then partner with larger pharmaceuticals companies to fund and commercialize their drugs. This cycle has paid off handsomely for Connecticut’s life sciences innovators, who have raised $3.2 billion in early stage fundraising, $2 billion in IPO proceeds and more than $8 billion in M&A proceeds. However, Trump’s unorthodox public health nominations—led by Robert F. Kennedy Jr. for HHS, who has questioned the efficacy of vaccines—is poised to disrupt this virtuous cycle.
At the same time, life sciences companies would certainly welcome a less restrictive antitrust regime. Under the Biden Administration, pharmaceuticals companies such as Amgen and Pfizer were stalled in buying promising drug candidates by excessively zealous antitrust enforcers, which seems likely to change under Trump.
CT fintech industry, particularly crypto, could receive a boost under Trump
Financial services and fintech now employs over 107,000 Connecticut residents—No. 1 of any state for concentration of finance talent—with over 5,400 financial companies contributing $30 billion to the state’s GDP, including 10 of the world’s 20 largest hedge funds. Stamford has emerged as a hub for fintech innovation, with fintech startups raising over $3 billion in funding.
The fintech industry, and especially crypto, looks forward to a less hostile regulatory regime under the Trump Administration and new SEC leadership. Many crypto boosters believe the Trump Administration will unleash a new wave of cryptocurrency prosperity; and indeed, bitcoin prices have already soared past $100,000 since Trump’s election.
Trump and Connecticut’s advanced manufacturing base & emerging technologies innovation
Although Connecticut has long been criticized for high energy costs, that is quickly changing as Connecticut emerges as an epicenter for clean energy, with the highest concentration of offshore wind jobs in the US and No. 3 for offshore wind power generated, No. 2 in clean energy patents, as well as No. 3 for fuel cell patents. However, advances in Connecticut’s clean energy and advanced manufacturing innovation are at least in part dependent upon the continued disbursement of hundreds of billions from the Biden legislative program. Any changes to the Inflation Reduction Act or to EV policy would ripple across to many of Connecticut’ largest employers, including $100 billion electronic connectors powerhouse Amphenol.
On the flip side, the pool of venture capital funding available for supporting emerging technologies innovation in Connecticut has doubled, with 200 VC investors based here managing over $300 billion assets under management, No. 2 of any state in the nation. That trend is poised to continue as long as financial markets continue to soar.
Connecticut workforce development & education highly sensitive to Trump
With an increasingly diverse workforce—Connecticut has doubled the number of minority workers over the last decade—Trump’s immigration policies, ranging from potential restrictions on H1-B visas for highly skilled legal migrants to mass deportations of illegal immigrants, could drive potential volatility in labor supply.
Furthermore, with Trump advisors floating proposals targeting top research universities and educational institutions, including a possible on tax Ivy League endowments, and potentially defunding academic R&D grants, federal lack of support for higher education could disrupt workforce development efforts and cycles of innovation. For example, Trump’s National Institutes of Health nominee, Jay Bhattacharya, has suggested he will use free speech rankings to guide funding allocations to universities, which would have devastating consequences for the scientific research done by Connecticut’s institutions of higher education.
Despite Trump-driven turbulence in these five key sectors crucial to Connecticut’s economy –nevertheless, there is much reason to be optimistic about Connecticut’s economic turnaround continuing; and public-private cooperation is sure to continue at the state level no matter what happens at the federal level.
Gov. Ned Lamont, as a centrist Democrat who enjoys strong bipartisan support, has a history of working effectively with President Trump during the first Trump Administration. Lamont’s State of the State Address last week was well received by both parties for its fiscal soundness, with again significant budget surplus and record funding of pension liabilities. The business community also stands ready to engage. Over the last half-decade, business leaders working with Lamont have quietly played an underappreciated but significant role in reviving Connecticut as a premier destination for businesses, large and small. There have been over 100,000 new jobs created in Connecticut with at least $100 billion invested in Connecticut by the private sector (as a measure of reference, the state government budget is $25 billion annually). The economic development authority Advance CT has helped retain and recruit scores of new business each year, while the state’s independent venture agency Connecticut Innovations has produced thousands of jobs through new record investing in hundreds of new enterprises.
The resurgent spirit of optimism in this state has become a great economic resource. Nevertheless, Connecticut’s economy is highly levered to federal policies, and our public officials should be on high alert and ready to fight any proposed Trump policies which would hurt our state’s businesses. The drift of federal expenditures from the Northeast to the Sunbelt states will require continued vigilance from Connecticut’s diligent Congressional delegation to ensure these high performing economic sectors receive their fair share of government contracts and appropriate regulatory oversight.
Every resident has ideas on how things should run better. Comedian George Burns told me in 1985 that “It’s too bad that all the people who really know how to run the country are busy driving taxi cabs and cutting hair.” We need all those voices now to encourage our leaders to protect the futures of our key industries in Washington.
“The Yale School of Management is the graduate business school of Yale University, a private research university in New Haven, Connecticut.”
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