WDonald Trump When he snuck out of the White House in 2021, executives at America's biggest companies breathed a sigh of relief. With a 30-point victory in the Iowa caucuses, they are digesting the reality that Trump could be back at the deciding table this time next year. economist I've been talking to these giants over the past few weeks. While some are deeply alarmed by the prospects of Trump II, others are quietly welcoming the disrupted trade.
Those who run large organizations must be optimistic. They have to find opportunities when others are panicking. CEOThey are anxious about their relationship with President Trump, and while they support his more traditional policies, many distance themselves from his most outrageous statements and harp on protectionism. continued. Congressional Republicans may talk about being pro-worker, but they are actually cutting business taxes. It was difficult for American companies to fall into a dire situation amid soaring stock prices.
If Trump is indeed re-elected, big business owners plan to keep their heads down (“Don't be Bud Light” is often repeated after beer brands fall victim to the culture wars) ). They will avoid being dragged into Trump's business councils, avoid presidential photo ops, and continue to make money. Indeed, it would be bad for Western civilization if Mr. Trump struck a deal with Russia that ended the war and sold out Ukraine. But it will reduce your utility bills.
Furthermore, domestic Trump enthusiasts C-Sweet has a lot to complain about about Joe Biden. Mention the names of Lina Khan, who oversees the Federal Trade Commission (antitrust police), or Gary Gensler, who heads the Securities and Exchange Commission (Wall Street police), and they gasp. Biden wants to raise taxes on corporations. The administration also wants to move forward with implementing Basel III “late stage” regulations. The regulation would require big banks to hold perhaps 20% more capital on their balance sheets, calming animal spirits and hurting profitability.
But this bullish assertion of Mr. Trump's economic management is complacent. They fail to recognize how Trumponomics, a combination of deficit-financed tax cuts and tariffs, would work differently today. And it ignores how Trump's most chaotic tendencies could threaten America, including businesses.
In his first term, the economy fared better than many economists (including our own) expected. One reason was that Trumponomics turned out to be more moderate than the campaign had promised. Also, the economy was producing much less than expected, making it possible to cut taxes without causing inflation. Strong overall growth and low inflation masked the damage caused by Trump's protectionism.
There is no evidence that Mr. Trump has changed his approach. He's still a tax cut and debt guy. However, economic conditions have changed. For the past two years, the Federal Reserve has been trying to bring down inflation. Although it has largely succeeded, the labor market remains tight. Currently, there are 2.8 million more people between the ages of 25 and 54 working than if the January 2017 employment rate had remained the same. Then, for every job opening, he will have 1.3 unemployed people. Today there is only 0.7. As a result, the economy is more likely to overheat.
Budgets are also deteriorating. The annual deficit in 2016 was 3.2%. GDP Debt was 76% GDP. The projections for 2024 are 5.8% and 100%, respectively. If Mr. Trump pursues another tax cut, the Fed would have to raise interest rates to offset the stimulus, making it more expensive for companies to raise capital and for the government to pay off its growing mountain of debt.
These are the conditions under which populists in Latin America can bully central banks to keep interest rates low, a tactic Trump used last time. The Fed is supposed to be independent, but Mr. Trump has the opportunity to nominate a stooge as chairman in May 2026, and a pliant Senate could coddle him. The risk of further inflation would surge, perhaps exacerbated by further tariffs, and growth would also slow.
In addition to this major macroeconomic risk, there are many other risks as well. Businesses will not welcome further trade restrictions, but some in Mr. Trump's circles have suggested imposing 60% tariffs on imports from China. Many companies favor federal support for renewable energy, which Mr. Trump has dubbed the “green new scam.” He has promised the largest deportation program in U.S. history to reduce the number of illegal immigrants in the country. This will not only create a dire situation, but will also shock the tight labor market.
As always, it's very difficult to say what Trump will actually do. He has few stereotypes and is a chaotic boss, who can turn him around multiple times a day. At a town hall in Iowa, he said he would be too busy in his second term to seek retribution against political opponents. That came hours after his own camp sent out an email with the subject line, “I'm your revenge!” He could recognize Taiwan's independence, prompting a meltdown in Beijing and a blockade of the island. Or China could just walk away from Taiwan in exchange for buying more from America. Businesses often say that the thing they fear most is uncertainty. Mr. Trump guarantees that.
This unpredictability could make President Trump's second term much worse than his first. His administration lacks establishment-type talent like Gary Cohn, formerly at Goldman Sachs, who can shuffle the president's agenda and hide his more outlandish ideas from him. Dew. There could be more moments like January 6th, and a full-fledged vengeance as president.The idea is that in this scenario, business leaders can keep a low profile and focus on EBITDA It's fanciful. Employees, customers, and the press will demand to know where their boss stands and what he plans to do. This time, the administration may ignore all criticism.
In the long run, the idea that corporate interests can be protected from social disruption is an illusion. If Trump corrupts U.S. politics on a pervasive basis and corporations are seen to benefit from his rule, that poses a major risk going forward. In Latin America, when big business associates with dictators, the result has usually been to discredit capitalism and increase the appeal of socialism. This seems unthinkable in America. But until recently, so was Trump's second term. ■
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