(Roughly) Daily

… So, the estimable Rana Foroohar suggests, American business leaders should be careful what they wish for…

For months now, I’ve been watching with alarm how many top business leaders in the US are buying the line that Donald Trump II would somehow be just like the last time around — loud, but laissez-faire. It was so depressing to see some of America’s top CEOs giggling as the former president joked at his recent Business Roundtable event in Washington. Trump said that he’d polled waitresses and caddies (presumably at Mar-a-Lago) about removing taxes on tips and they were in favour. Sure, there were reports of some grumbling about hardline tariff talk, Trump’s inability to stay on point and his general blow-hardness. But for the most part, tax cuts, deregulation and an utter lack of imagination about political risk seems to be driving business sentiment around him.

It’s not just American business that has the blinders on. I did a Lunch with the FT [gift link] with Lloyd’s of London chief executive John Neal, and I was amazed that when I asked him to think about his top US political risks, he spoke first about Joe Biden’s money printing — rather than the risk to, say, the rule of law under Trump. When I pressed him on the Trump risk, his biggest worry seemed to be the differing policies of the two candidates around things like electric vehicle production, and the decision risk that this might introduce for companies.

Really folks? Let’s have a refresher course on Trumpian economics.

In 2016, Trump talked tough about Made in America and helping working people, but most of his economic policies (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 VERY 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 Federal Reserve’s End of an Era paper from June 2023 laid out, more than 40 per cent of real corporate profit growth between 1989 and 2019 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. 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 would be willing to come into a second administration given the January 6 2021 Capitol riots and Trump’s ongoing election-loss denial. Some smart people in the business community have concerns about his propensity for fiscal profligacy at a time when rising US deficit levels are worrying investors. It’s fascinating to me that people think about Biden when they think about debt, rather than Trump. Biden’s White House has made record fiscal investment, sure, but it is investing in the real economy, while Trump’s legacy was a classic Republican formula of boosting asset markets with financialisation.

Add to that the prospects of a 10 per cent tariff on imports across the board, and 60 per cent levy on China. 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.

I haven’t seen anything yet that makes me think that Trump or anyone in his orbit has a plan for a multipolar world, or any sense of how to manage complex supply chain de-risking or the politics of friendshoring. And yet, 10 or 60 per cent tariffs depending on the locale would require some kind of reshoring approach. None of that will square with an asset boom, but rather quite the opposite…

A warning to business leaders supporting Trump, from @RanaForoohar @FT.

(Image above: source)

* Oscar Wilde

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As we study self-interest, we might recall that it was on this date in 1972 that an 18-1/2-minute gap appears in the tape recording of the conversations between U.S. President Richard Nixon and his advisers regarding the recent arrests of his operatives while breaking into the Watergate complex.

Still, the tapes were damming. The White House released the subpoenaed tapes on August 5. One tape, later known as the “Smoking Gun” tape, documented the initial stages of the Watergate coverup. On it, Nixon and Haldeman are heard formulating a plan to block investigations by having the CIA falsely claim to the FBI that national security was involved.

It’s a measure of how different those times were from ours that, once the “Smoking Gun” transcript was made public, Nixon’s political support practically vanished: the ten Republicans on the House Judiciary Committee who had voted against impeachment in committee announced that they would now vote for impeachment once the matter reached the House floor.