Why is business so sanguine about Trump?

For months now, I’ve been watching with alarm how many top business leaders in the US are buying the line that Donald Trump II would somehow be just like the last time around — loud, but laissez-faire. It was so depressing to see some of America’s top CEOs giggling as the former president joked at his recent Business Roundtable event in Washington. Trump said that he’d polled waitresses and caddies (presumably at Mar-a-Lago) about removing taxes on tips and they were in favour. Sure, there were reports of some grumbling about hardline tariff talk, Trump’s inability to stay on point and his general blow-hardness. But for the most part, tax cuts, deregulation and an utter lack of imagination about political risk seems to be driving business sentiment around him.

It’s not just American business that has the blinders on. I did a Lunch with the FT with Lloyd’s of London chief executive John Neal, and I was amazed that when I asked him to think about his top US political risks, he spoke first about Joe Biden’s money printing — rather than the risk to, say, the rule of law under Trump. When I pressed him on the Trump risk, his biggest worry seemed to be the differing policies of the two candidates around things like electric vehicle production, and the decision risk that this might introduce for companies.

Really folks? Let’s have a refresher course on Trumpian economics. 

In 2016, Trump talked tough about Made in America and helping working people, but most of his economic policies (aside from tariffs on China) were basically business as usual. He rolled back regulation and lowered taxes on big corporations. Much of the money went to stock buybacks, not Main Street investment. That buoyed short-term stock prices, which were also helped along by low interest rates.

But, it’s VERY unlikely we would see the same phenomenon in a second Trump administration. His tenure marked the apex of financialised growth, which is now largely tapped out. As the Federal Reserve’s End of an Era paper from June 2023 laid out, more than 40 per cent of real corporate profit growth between 1989 and 2019 came from the secular fall in interest rates, and corporate tax rates being cut. That’s what has propelled so much growth in equities in recent years.

Today, the S&P is by some measures more overvalued than it was when the housing bubble burst. In this environment, it’s difficult to see equities rising even if the Fed were to begin cutting rates in the face of a recession. It’s much more likely they’d fall, despite any new Trump tax cuts. And that is the more benign scenario. A more likely possibility is that we’d get a harder-edged, even more insular, xenophobic and paranoid version of Trump this time around.

For starters, few of the more moderate business types that served with him the first time would be willing to come into a second administration given the January 6 2021 Capitol riots and Trump’s ongoing election-loss denial. Some smart people in the business community have concerns about his propensity for fiscal profligacy at a time when rising US deficit levels are worrying investors. It’s fascinating to me that people think about Biden when they think about debt, rather than Trump. Biden’s White House has made record fiscal investment, sure, but it is investing in the real economy, while Trump’s legacy was a classic Republican formula of boosting asset markets with financialisation.

Add to that the prospects of a 10 per cent tariff on imports across the board, and 60 per cent levy on China. This goes to what has been one of the biggest problems with Trump’s trade and economic strategies from the beginning — a tendency to blame China and employ tariffs as a standalone solution to the big, complex problem of slower secular growth and growing inequality in the US. Not that Trump seems to think in such nuanced terms. The fact is that America’s economic and political problems are only partly about the failings of globalisation and the neoliberal trading system in particular. They are also about a lack of investment at home, in basic infrastructure, skills and education, as well as core research and development.

I haven’t seen anything yet that makes me think that Trump or anyone in his orbit has a plan for a multipolar world, or any sense of how to manage complex supply chain de-risking or the politics of friendshoring. And yet, 10 or 60 per cent tariffs depending on the locale would require some kind of reshoring approach. None of that will square with an asset boom, but rather quite the opposite. So, Peter, why the heck are more CEOs not up in arms? Wishful thinking? Cynical politics? Utter cluelessness? Or your better answer?

Recommended reading

• This surprising Economist piece deconstructing the meaning of Bruce Springsteen’s iconic “Born in the USA” album 40 years after its release is spot on. I didn’t expect to read about the Boss here!

• I’ve been following The New York Times’ series on Baltimore’s decline, and why it has been so very difficult to turn this old line industrial city around, despite its amazing location. The lesson to me here, although it’s not spelt out, is that unlike places such as Detroit and Pittsburgh, which have seen some real economic reinvigoration, Baltimore doesn’t yet have a strong local leader that can turn things around in the city. My vote would be for Gary Gensler to take that on after he’s finished policing financial markets at the SEC. This city should not be languishing at a time of re-industrialisation.

• In the FT, don’t miss the Big Read on the rise of the far-right in France.

• And on a lighter note, Jo Ellison’s billionaire Venn diagram of Rupert Murdoch’s {latest} wedding gave me a chuckle.

Peter Spiegel responds

Rana, let’s do a little thought experiment: imagine Biden were running for re-election against a garden variety 1990s-era Republican candidate, and you were a corporate executive. How would you view the last four years? 

I think it’s fair to say that Biden’s first term has been one of the most anti-corporate in decades. His antitrust enforcers at the Justice Department and Federal Trade Commission have sought to block multiple mergers and sued to break up Big Tech groups and non-tech companies alike. 

He has been, as he repeatedly brags, the most pro-union president in the modern era, and his National Labor Relations Board has reflected that, going after companies like Starbucks that have resisted union organisation and backing contentious rules that force employers to treat contract workers as full-time employees.

His environmental policies, at least before Russia’s invasion of Ukraine, were decidedly slanted against Big Oil groups, making it more expensive to drill on federal lands and limiting their ability to explore offshore. And of course there is his repeated advocacy for an increase in corporate tax rates. 

Knowing your views on the US economy, Rana, I’d venture a guess that most (if not all) of these policies are ones you agree with. But if you’re sitting in a corporate boardroom, much of what comes out of the Biden White House appears aimed at you — far more than during the Obama or Clinton administrations. 

If that were the end of the thought experiment, I think it would be pretty clear why many business executives from Silicon Valley to Wall Street have turned on Biden. What makes this decision far more complicated is what you have pointed to: the Trump-era Republican party is hardly the free trading, low spending, anti-regulation beast that we knew in the 1990s. Its nativism, protectionism and populism are all decidedly anti-business. 

What many in American business have decided is not, as you suggest, cluelessness or cynicism, I don’t think. It is a bet that, for all its dangerous authoritarianism, another four years of Trumpism is better for their business than the aggressively anti-corporate Biden administration. You and I may think that’s misguided. But Biden’s record certainly gives executives reason to be hostile to his re-election.

Your feedback

And now a word from our Swampians . . .

In response to “A day in the life of the US ambassador to China”:
“I’d recommend reading the new piece about “sleepwalking” into a war by Odd Arne Westad in Foreign Affairs. Unlike the superficial portrayal of a virtuous United States and an evil China, he explains why there is blame on both countries. A country that invades Iraq without any international legitimacy is hardly in a convincing position to lecture others on international law. Most importantly, Westad says a more realistic analysis could prevent the countries blundering into war like Britain and Germany did in 1914. The increasing hostility among the public in both countries reflects the rhetoric they are hearing from their leaders. Remember that the public in both Britain and Germany were certain of a quick victory in 1914.” — FT reader Global