When Donald Trump In 2021, executives from major companies sneaked out of the White House American they sighed in relief. Now that he has won the Iowa caucuses by 30 points, they are digesting the reality that Trump could be back at the Resolute Table next year. The Economist has spent the last few weeks speaking to these titans. Some are deeply disturbed by the prospect of Trump 2. But others quietly welcome the business chaos.
People who lead large organizations need to be optimistic. You have to find options when others panic. CEOs had an uneasy relationship with former President Trump, with many distancing themselves from his more outrageous statements and expressing anger over protectionism even as they enjoyed his more conventional policies. Republicans in Congress may have talked about being the party of workers, but in practice they have cut corporate taxes. It was difficult for the American business community to remain sad in the midst of a soaring stock market.
If Trump does get reelected, big company executives will want to keep quiet (“Don’t be Bud Light,” is a common refrain after the beer brand became a target in the culture wars). They want to avoid getting sucked into Trump's corporate boards, running away from propaganda photos and continuing to make money. True, it would be bad for Western civilization if Trump made a deal with Russia that ended the war and betrayed Ukraine. But that would reduce energy costs.
Plus, Trumploving CEOs complain about it a lot Joe Biden. Mention Lina Khan, who runs the Federal Trade Commission (the antitrust police), or Gary Gensler, who runs the Securities and Exchange Commission (the Wall Street police), and they hold their breath. Biden wants to increase corporate taxes. His government also wants to push ahead with Basel III regulations, known as “Endgame,” which will force big banks to hold perhaps 20% more capital on their balance sheets, appeasing animal spirits and hurting profitability.
Donald Trump is ahead in the race to be the Republican candidate for this year's presidential election in the United States. Photo: AP Photo/Andrew Harnik
But this optimistic argument for Trump's economic management is complacent because it fails to take into account that the “Trump economy” a mix of deficitfinanced tax cuts and tariffs would work differently today. And it ignores the ways in which Trump's more chaotic tendencies could threaten the United States and its businesses.
In his first term, the economy performed better than many economists (including ours) expected. This was partly because the “Trump economy” turned out to be more moderate than promised during the campaign. In addition, the capacity of the economy was much lower than previously assumed, meaning that tax cuts were possible without fueling inflation. Robust overall growth and low inflation masked the damage caused by Trump's protectionism.
There is no sign that Trump has changed his approach: he is still the guy who cuts taxes and takes on debt. But economic conditions have changed. Over the past two years, the Federal Reserve has tried to reduce inflation. Although this has almost been achieved, the labor market remains tense. More 2.8 million Americans ages 25 to 54 are working today than would be the case if the unemployment rate continued in January 2017. At that time, there were 1.3 unemployed people for every vacancy; today it is only 0.7. This makes the economy more likely to overheat.
The budget is also worse. In 2016, the annual deficit was 3.2% of GDP and debt was 76% of GDP. The forecasts for 2024 are 5.8% and 100%, respectively. If Trump cuts taxes again, the Fed will have to raise interest rates to offset the stimulus, making it more expensive for companies to raise capital and for the government to pay rising debt services.
Biden should be the Democratic nominee again. Photo: AP Photo/Stephanie Scarbrough
Under these conditions, Latin American populists are forcing their central banks to keep interest rates low, a practice that Trump exploited last time. The Fed is supposed to be independent, but Trump will have a chance to appoint a puppet president of the bank in May 2026, and a compliant Senate could agree. The risk of higher inflation would increase, possibly compounded by higher tariffs, which would also slow growth.
In addition to this major macroeconomic risk, there are many others. Businesses would not welcome further trade restrictions, but some close to Trump said the tariff on imports from China would rise to 60%. Many companies like the federal government's support for renewable energy (which Trump calls the “New Green Scam”). Trump promised the largest deportation program in US history to reduce the number of illegal immigrants in the country. Not only would this cause suffering, but it would also be a shock to this tight labor market.
As always, it is very difficult to predict what Trump will actually do: he has few strong convictions, is a chaotic boss and can change his position several times a day. At a town hall in Iowa, Trump said he was too busy in his second term to seek revenge on his political enemies. This came just hours after his own campaign sent out an email with the subject line “I am your punishment!” Trump would recognize Taiwan's independence, triggering a collapse in Beijing and a blockade of the island. Or it would forget about Taiwan in exchange for China committing to buying more from the US. Companies often say their biggest fear is uncertainty. With Trump, uncertainty is guaranteed.
That unpredictability could make a second Trump term even worse than his first. His administration would not have members of the establishment like Gary Cohn, the former Goldman Sachs, rummaging through the president's inbox and hiding the craziest ideas from him. More moments like January 6th would be possible, as in a completely vindictive presidency. The idea that business leaders can keep a low profile and focus on their Ebitdas in this scenario is an illusion. Employees, customers and the press would demand to know the bosses' position and suggestions. The government, in turn, could object to any critical whiff.
In the long term, the idea that corporate profits can be protected from social unrest is nothing more than a fantasy. If Trump largely corrupts American politics and companies assume that they will benefit from his government, this poses a great risk for them in the future. In Latin America, when large companies align themselves with autocrats, this usually leads to capitalism is discredited and the appeal of socialism is increasing which seems just as unthinkable in the USA as Trump's second term in office once did./ TRANSLATION BY GUILHERME RUSSO