HIS inauguration is still six weeks away but Donald
Trump has already sent shock waves through American business. Chief
executives—and their companies’ shareholders—are giddy at the president-elect’s
promises to slash burdensome regulation, cut taxes and boost the economy with
infrastructure spending. Blue-collar workers are cock-a-hoop at his willingness
to bully firms into saving their jobs.
In the past few weeks, Mr Trump has lambasted Apple
for not producing more bits of its iPhone in America; harangued Ford about
plans to move production of its Lincoln sports-utility vehicles; and lashed out
at Boeing, not long after the firm’s chief executive had mused publicly about
the risks of a protectionist trade policy. Most dramatically, Mr Trump bribed
and cajoled Carrier, a maker of air-conditioning units in Indiana, to change
its plans and keep 800 jobs in the state rather than move them to Mexico. One
poll suggests that six out of ten Americans view Mr Trump more favourably after
the Carrier deal. This muscularity is proving popular.
Popular but problematic. The emerging Trump strategy
towards business has some promising elements, but others that are deeply
worrying. The promise lies in Mr Trump’s enthusiasm for corporate-tax reform,
his embrace of infrastructure investment and in some parts of his deregulatory
agenda. The dangers stem, first, from the muddled mercantilism that lies behind
his attitude to business, and, second, in the tactics—buying off and attacking
individual companies—that he uses to achieve his goals. American capitalism has
flourished thanks to the predictable application of rules. If, at the margin,
that rules-based system is superseded by an ad hoc approach in which
businessmen must take heed and pay homage to the whim of King Donald, the
long-term damage to America’s economy will be grave.
Helping the few at the expense of the many
Start with the confusions in Mr Trump’s philosophy.
The president-elect believes that America’s workers are harmed when firms move
production to cheaper locations offshore. That is why he wants to impose a 35%
tariff on the products of any company that moves its production abroad. Such
tariffs would be hugely disruptive. They would make goods more expensive for
American consumers. By preventing American firms from maximising their
efficiency using complex supply chains, they would reduce their
competitiveness, deter new investment and, eventually, hurt workers’ wages
across the economy. They would also encourage a tit-for-tat response.
Precisely because tariffs would be so costly, many
businessmen discount Mr Trump’s protectionism as mere rhetoric. Plenty of them
see the focus on individual firms as a politically canny (and thus sensible)
substitute. If Mr Trump can convince American workers that he is on their side
using only a barrage of tweets and a few back-room deals like the one with
Carrier, there may be no need to resort to tariffs. To profit from a
business-friendly bonanza, the logic goes, clever executives simply have to make
sure they stay in the president’s good books.
That looks like wishful thinking. Mr Trump’s
mercantilism is long-held and could prove fierce, particularly if the strong
dollar pushes America’s trade deficit higher (see article). Congress would have only limited powers to restrain
the president’s urge to impose tariffs. More important, even if rash
protectionism is avoided, a strategy based on bribing and bullying individual
companies will itself be a problem.
Mr Trump is not the first American politician to
cajole firms. For all its reputation as the bastion of rule-based capitalism,
America has a long history of ad hoc political interventions in business (see article). States routinely offer companies subsidies of the
sort that Indiana gave to Carrier. From John Kennedy, who publicly shamed steel
firms in the 1960s, to Barack Obama, who bailed out car companies in 2009, all
presidents have meddled in markets.
And Mr Trump’s actions so far are not exceptional
relative to his predecessors or by international standards. Britain’s prime
minister recently made undisclosed promises to Nissan, a Japanese carmaker, to
persuade the firm to stay in Britain despite Brexit. The French government is
notorious for brow-beating individual firms to keep jobs in France. The most
egregious crony corporatists, from Russia to Venezuela, dish out favours to
acolytes and punishments to opponents on a scale that would bring blushes even
in Trump Tower.
Courting the king and currying favour
Nonetheless, Mr Trump’s approach is worrying. Unlike
the Depression, when Hoover and then Roosevelt got companies to act in what
they (often wrongly) saw as the national interest; or 2009, when Mr Obama
corralled the banks and bailed out Detroit, America today is not in crisis. Mr
Trump’s meddling is thus likely to be the new normal. Worse, his penchant for
unpredictable and often vindictive bullying is likely to be more corrosive than
the handouts most politicians favour.
If this is the tone of the Trump presidency, prudent
businesses will make it their priority to curry favour with the president and
avoid actions that might irk him. Signs of this are already evident in the
enthusiasm with which top CEOs—many of them critics of Mr Trump during the
campaign—have rushed to join his new advisory board. Helping the Trump
Organisation or the Trump family might not go amiss either. The role of
lobbyists will grow—an irony given that Mr Trump promised to drain the
Washington swamp of special interests.
The costs from this shift may be imperceptible at
first, exceeded by the boon from economic stimulus and regulatory reform. And
as president of the world’s largest economy, Mr Trump will be able to ride
roughshod over firms for longer with impunity than politicians in smaller
places ever could. But over time the damage will accumulate: misallocated
capital, lower competitiveness and reduced faith in America’s institutions.
Those who will suffer most are the very workers Mr Trump is promising to help.
That is why, if he really wants to make America great again, Mr Trump should
lay off the protectionism and steer clear of the bullying right now.
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