Why Trump Is Bad for Business – Fortune
November 18, 2019
Within moments of Donald Trump’s upset victory in the 2016 election, investors began stampeding into the shares of America’s steelmakers. After all, this was a business he had explicitly pledged to rescue. “Your steel industry—we’re bringing it back, bringing it back, folks!” he had promised a wildly cheering crowd in Pittsburgh the previous April. So when trading opened the morning after election day, the buy orders were stacked high and prices began to rocket. By week’s end the S&P 500 was up 2%, but Steel Dynamics was up 13%, Nucor up 14%, Pittsburgh’s own U.S. Steel up 23%. For a Rust Belt industry in distress, deliverance had apparently come.
Fast-forward a few months, to when Trump imposed tariffs on imported steel and steelmaker stock prices surged even higher, at least for a while. Today the shares of all of America’s major steelmakers are trading not just below their 2018 highs but also below where they were before Trump’s election. U.S. Steel, which worked hard behind the scenes to help fashion the tariffs, is worth nearly one-third less than its value on Election Day. Bringing back the industry turned out to be harder than Trump, steel company executives, or investors ever imagined.
American steel is a particularly dramatic microcosm of U.S. business in nearly three years of the Trump presidency—an era that began full of promise and was initially a welcome boon for major sectors but that has become increasingly detrimental for many. Trump has been virulently criticized for a wide range of things, but, as the nation focuses on impeachment, Fortune has chosen to focus solely on his economic and business record. On that dimension, the one constant of his tenure so far has been lurching inconsistency, creating an environment of unprecedented uncertainty that has become a significant business problem in itself. It’s hard to believe, but despite several seemingly pro-business policies and a few major early successes, the first career-businessman President has become bad for business.
But wait—how can today’s environment be bad for business? Stocks have been hitting new record highs. Inflation is low. Interest rates are extraordinarily low. Though the labor market is ultra-tight, more workers are reentering the labor force in response, and consumers have more money to spend. Isn’t this close to business nirvana?
It ought to be, but look closer. Sentiment in some previously friendly quarters has turned powerfully against Trump. CEO confidence, which leapt in Trump’s early days, has since plunged to levels not seen since the darkest days of the financial crisis in 2009. “The Trump administration lost the C-suite in 2018,” says Douglas Holtz-Eakin, a Republican who ran the Congressional Budget Office from 2003 through 2005 and now heads the American Action Forum, a center-right think tank. “I think the cause is mainly trade.” (Fortune interviewed several corporate executives who largely shared Holtz-Eakin’s view but were wary of saying so on the record. The White House, for its part, did not respond to several requests for comment.)
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Small-business owners rejoiced when Trump won, but their optimism, as surveyed by the National Federation of Independent Business, began to slump substantially a year ago. Hundreds of industry associations, from the tiny American Down and Feather Council to the huge National Retail Federation and the U.S. Chamber of Commerce, are publicly opposing his policies on trade, immigration, or both. The fear among many businesspeople is that, after a strong start, he’s now doing more harm than good and has no significant policy levers left to pull.
Workers witness Trump ordering tariffs on steel and aluminum imports at the White House, March 2018.
Andrew Harrer—Bloomberg/Getty Images
How did it come to this? Interviews with businesspeople, economists, policymakers, lobbyists, and advisers, Republicans and Democrats, allies and enemies, reveal near unanimity on how Trump has helped and hindered U.S. business. What comes next, as always in the Trump era, is harder to say.
... Trump’s first year looked like a home run for business.
But then something happened. There were no more home runs to cheer. The stock market boom has evaporated; while stock prices were recently at record highs, those highs were scarcely higher than prices back in January 2018. Since then they’ve risen at a compound annual growth rate of only about 4%; adjusted for inflation, the gain is less than 2%. Likewise, corporate profits are down. Economic growth, after accelerating, is slowing way down as well. Candidate Trump said he’d raise GDP growth “from 1% up to 4%. And I actually think we can go higher than 4%. I think you can go to 5% or 6%.” That was fantasy. The tax cut combined with mammoth federal spending helped juice growth to 2.9% last year, but now the Fed predicts only 2.2% growth this year, 2% next. That’s right in line with growth since 2000, which has averaged 2.1%
What happened is no mystery. Trump has wiped out the benefits of his first-year policy successes by doubling down on his signature campaign issues, tariffs and immigration, adding a thick layer of uncertainty and chaos to his policy intentions, and raising federal indebtedness to new highs. Managing the world’s largest economy is apparently harder than he thought. “Trade wars are good, and easy to win,” he famously tweeted last year. Turns out they aren’t. “It would be so easy to fix our weak and very stupid Democrat inspired immigration laws,” he tweeted last March. Turns out immigration policy is harder than it looks. We’re seeing now why Trump’s highest-profile policy prescriptions, reducing trade and immigration, have long been opposed by economists across the political spectrum.
Trade
It’s clear why Trump’s economic successes stopped cold in early 2018. That’s when he launched the trade war against China and to lesser extents against Mexico, Canada, and Europe. Like virtually all trade wars (and most other wars), it started small and escalated through tit-for-tat retaliations that neither side was willing to stop. Result: The average U.S. tariff on Chinese imports, 3% at the start of last year, could hit 24% by year-end, with Chinese tariffs on U.S. goods set to do the same.
Steep tariffs are hurting U.S. business, and CEOs are saying so. A September survey by the Conference Board that revealed a vertiginous drop in CEO confidence also asked an open-ended question about what worried CEOs most. The top answer was tariffs and trade wars. Purchasing managers say the same. “Global trade remains the most significant cross-industry issue,” says Timothy Fiore of the Institute for Supply Management. The ISM’s latest Purchasing Managers Index shows the manufacturing sector contracting for the third consecutive month. “Automotive related manufacturing is definitely slowing in the U.S.,” an executive in the metals industry told the ISM. “I think we are seeing the negative impacts of the tariff war with China and the unsigned [U.S.-Mexico-Canada Agreement] deal starting to hurt consumer confidence, especially on large purchases. Corporations are slowing orders/production accordingly.”
That executive is right about consumer confidence—it’s declining, and when the University of Michigan asked consumers about their main concerns, they mentioned tariffs and trade most often. That’s especially worrisome because consumer spending is the strongest force keeping the U.S. economy growing.
French President Emmanuel Macron shakes hands with Chinese President Xi Jinping following a signing ceremony at the Great Hall of the People, in Beijing this November.
NICOLAS ASFOURI—AFP/Getty Images
Trade is intertwined with America’s overall international relations, a fact that further worries businesspeople as they see Trump spurn longtime allies—members of NATO and the G-7, the Kurds in Syria, even Canada. “International trade is best executed with strong and reliable relationships with allies,” says Steve Caldeira, CEO of the Household & Commercial Products Association, an industry lobbying group. “That requires American global leadership, not a retreat to isolationist policies.” America’s leadership is already in peril, believes Christine Lagarde, former head of the International Monetary Fund and now chief of the European Central Bank. “I was brought up as a citizen of the world,” she recently told 60 Minutes. “The risk I see is that the United States is at risk of losing leadership. And that would be just a terrible development.”
It’s unclear exactly how badly the trade war is stunting America’s economic growth, in part because Trump is continually making and withdrawing threats of new tariffs, raising and lowering threatened tariff rates, or putting a scheduled tariff increase on hold, as he did recently, because negotiations had yielded “a substantial phase-one deal” with China, “subject to getting it written.” UBS chief economist Seth Carpenter issued a particularly gloomy forecast in September, predicting the trade war would drive U.S. economic growth down to a 0.3% annual rate by next year’s second quarter.
Whatever the damage, some fear it could persist for years. “What Trump has done to undermine our global leadership in terms of major multinational companies will be hard to undo,” says a former Republican cabinet member. “It’s smashing supply chains. Why should anyone want a U.S. company to be a supplier anymore? Why should Daimler want to build a plant in South Carolina anymore? He’s undermining our long-term prosperity.”
The concern is bipartisan. Jason Furman, a Harvard professor who chaired President Obama’s Council of Economic Advisers, worries that the trade war “is not just a short-run harm but threatens to create lasting uncertainty about things like supply chains. The process of decoupling from China isn’t just about paying a little more for things from China.”
The conflict is damaging more than just the U.S. Because it involves the world’s two other biggest economies, China and Europe, it’s hurting commerce worldwide. Global growth will drop to 3% next year, predicts the International Monetary Fund, the slowest growth since the financial crisis. The No. 1 culprit: “rising trade barriers.”
The global perspective helps explain why the American steel industry, which spent years lobbying for tariffs on steel imports, is worse off today than it was before Trump granted its wish. In a world of complex global supply chains, those rising trade barriers dampened demand broadly. That’s an important reason why the U.S. manufacturing sector is already in recession—which is bad news for steel because manufacturers are valuable customers for steelmakers. Compounding the damage, steelmakers, exhilarated by the imposition of tariffs, inflated their prospects and opened new capacity at the worst possible time. Increased supply, shriveling demand—it’s a classic recipe for a price plunge, and there’s no clear way out. That’s life in the real world, not the imaginary world of easy-to-win trade wars....
