His inauguration is still six weeks away, but already President-elect Donald Trump has 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 thrilled at his willingness to bully companies into saving their jobs.
In the past few weeks, Trump has lambasted Apple for not producing more parts 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 mused publicly about the risks of a protectionist trade policy.
Most dramatically, 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 10 Americans view Trump more favorably after the Carrier deal. This muscularity is proving popular.
The promise lies in 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 toward 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 If, at the margin, that rules-based system is superseded by an ad-hoc approach in which businessmen must take heed and pay homage to the whim of King Donald, the long-term damage to America’s economy will be grave.
The president-elect believes that America’s workers are harmed when companies 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 maximizing their efficiency using complex supply chains, they would reduce their competitiveness, deter new investment and, eventually, hurt workers’ wages across the economy. They also would encourage a tit-for-tat response from other countries.
Precisely because tariffs would be so costly, many businessmen discount Trump’s protectionism as mere rhetoric. Plenty of them see the focus on individual companies as a politically canny, and thus sensible, substitute. If 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 graces.
That looks like wishful thinking. Trump’s mercantilism is long-held and could prove fierce, particularly if the strong dollar pushes America’s trade deficit higher. 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.
So far Trump’s actions are not exceptional relative to his predecessors or by international standards. Prime Minister Theresa May recently made undisclosed promises to Nissan, the Japanese carmaker, to persuade the company to stay in Britain despite Brexit. The French government is notorious for brow-beating individual companies to keep jobs in France. The most egregious crony corporatists, from Russia to Venezuela, dish out favors to acolytes and punishments to opponents on a scale that would bring blushes even in Trump Tower.
Nonetheless, Trump’s approach is worrying. Trump’s meddling thus is 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 favor.
© 2016 Economist Newspaper Ltd., London (December 10). All rights reserved. Reprinted with permission.
Image credits: Damon Winter/The New York Times