US CEOs start to contemplate Trump, round 2

What would another Trump administration look like? As horrible as many find the prospect, it’s a topic that executives are beginning to have to grapple with. For reasons that range from inflation to the conflict in Gaza to Biden’s age, the current administration’s deft handling of a recession, a pandemic and war in Ukraine isn’t being reflected in polls. Many of them put Donald Trump back in the White House in 2024.

Despite any number of criminal charges against the former president, it seems a foregone conclusion that Trump will be the Republican nominee. Still, major donors like the Koch-backed Americans for Prosperity Action are piling into Nikki Haley’s campaign, which shows how worried the business community is about the possibility of Trump, round 2.

For starters, executives fear which Trump they will get should he be re-elected next November. Will it be laissez-faire Trump, or America First Trump? Back in 2016, Trump talked tough about Made in America and helping working people, but most of his politics (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 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 Fed’s End of an Era paper from June 2023 laid out, about 50 per cent of real corporate profit growth between 1984 and 2020 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, according to a recent Currency Research Associates report. 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 around would be willing to come into a second administration given the spectre of the January 6 Capitol riots and Trump’s ongoing election-loss denial.

The business community already has concerns about the former president’s propensity for fiscal profligacy at a time when rising US deficit levels are worrying investors. Add to that the prospects of a 10 per cent across the board tariff on imports, which Trump has floated as a potential second-term policy, and CEOs get even more worried.

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.

Biden has, of course, addressed many of these issues with more fiscal stimulus than we’ve seen since the Eisenhower era. At the same time his administration has attempted to do the challenging but necessary work of coming up with a new, more sustainable and inclusive economic model at home and abroad.

That’s smart industrial policy, and it’s something Trump appears to have neither the propensity or the ability to do. I was struck during the pandemic, for example, that despite all the tough talk from people like the Trump former economic adviser Peter Navarro about the US not being able to make, say, basic personal protective equipment, nobody in the White House had any idea about what the country could or should make.

The Biden administration, by contrast, came up with a major supply chain report in its first 100 days, and has begun to rebuild the US semiconductor industry and grapple with how to ensure a just and secure green transition.

This administration’s plans aren’t perfect. But Biden gets that you can’t just bash China — you have to create a paradigm shift at home if America is to regain its political and economic mojo.

US exceptionalism has always been based on immigration, as writer David Leonhardt lays out in his new book Ours Was the Shining Future: The Story of the American dream. It is immigration that has ensured higher trend growth than in other developed countries, and in recent years, helped dampen inflation. Trump, of course, wants to build a wall — in every sense. Business should think hard about what that would mean, for them and for the country, and do everything it can to ensure it doesn’t happen.

rana.foroohar@ft.com