They may not like his combative style, but business leaders have applauded much of President Trump’s economic agenda. Trump slashed their taxes starting in 2018, sending profits soaring. And he’s killing regulations, making it easier for business to operate.
But the honeymoon is ending as a tariff-happy Trump disrupts supply chains all over the world and threatens some U.S. companies outright. Businesses are responding to Trump’s escalating tariffs on imports from China, Mexico and other countries by curtailing investment, which will weaken the economy as Trump is heading for reelection in 2020. And investors unnerved by trade and immigration wars are selling stocks and other risky assets, signaling concern about economic damage Trump may be causing—and even a possible recession. The S&P 500 stock index is down 7% since the end of April, largely on trade worries.
The U.S. Chamber of Commerce, the top lobbying group for corporate America, says it may pursue legal action to stop Trump from imposing tariffs of up to 25% on imports from Mexico. Trump announced those tariffs on May 31 to pressure Mexico to stop migrants from flooding into the United States. A lawsuit probably won’t stop him. But combat with the powerful lobbying group—which has praised Trump’s regulatory reforms and called his tax cuts a “historic moment”—is a dark turn in Trump’s relations with corporate America. The chamber’s last such action was a suit against the Obama administration objecting to a more generous overtime rule, which it won.
If Trump goes the distance with his Mexico tariffs, they could add up to an $87 billion tax on nearly $350 billion worth of imports from Mexico—paid by Americans, not Mexicans. U.S. companies hurt the most would be General Motors, Delphi, Constellation Brands, Cummins, Black & Decker and Fiat-Chrysler (partly American), according to Panjiva Research. The tariffs would start at 5% and be raised incrementally over four months to 25%. It’s possible, of course, Trump is only bluffing.
But he hasn’t been bluffing about his tariffs on imports from China and other countries, which so far are taking about $106 billion out of the economy on an annual basis, costing the typical household $813 per year, according to the New York Federal Reserve. Bank of America recently cut its profit forecast for big companies on account of the Trump tariffs, and warned that stock prices still aren’t pricing in the possible damage, despite the recent swoon.
Some companies importing products from China are now switching to other countries not subject to the new Trump tariffs, such as Vietnam, Taiwan and Korea, according to Capital Economics. But that still entails relocation costs and new sources of production that might not be as cheap as China.
Some U.S. importers, such as camera maker GoPro, have shifted production from China to Mexico—and now face a double-whammy from Trump’s surprise announcement of the Mexican tariffs. Other U.S. firms seem to be targets of Chinese retaliation. The Chinese government, for instance, is investigating FedEx for misrouting two packages meant for the offices of tech giant Huawei in China. Yes, that Huawei—the one Trump wants to shut off from U.S. suppliers as part of his trade crusade. We can play that game, too, China seems to be saying.
The tax cuts companies cheered last year contributed to a modest bump in business investment in 2018. But that has trailed off, and manufacturing activity has now slumped to the lowest level since late 2016. That implies weak economic growth of just 1.5%, according to Capital Economics. Morgan Stanley warned recently that if Trump imposes additional tariffs on Chinese imports, as he has threatened, the result could be a recession early next year.
Personal hostility, settling scores
Amid all this, Trump is renewing attacks on some familiar corporate targets and launching some new ones. He recently encouraged a boycott of AT&T, because it owns CNN, one of the news organizations Trump blasts regularly for its critical reporting. Trump’s Justice Department tried to block the recent AT&T-Time Warner merger, on unusual grounds—most likely because of Trump’s personal hostility toward CNN, which would be an egregious abuse of presidential power. The government lost and the merger went through.
The Trump administration is now reportedly considering antitrust proceedings against Google, Amazon, Facebook and Apple. There are legitimate reasons to examine the reach and power of the tech giants, and whether they’re squashing competition. But Trump has attacked Amazon and Google for personal reasons, which sows doubts about the government’s real interests. Trump dislikes Amazon CEO Jeff Bezos, who owns the Washington Post, which like CNN routinely criticizes Trump. And Trump complains, with no evidence, that Google favors liberal groups and causes over conservative ones. So antitrust probes could just be another way for Trump to settle scores.
Trump got elected by saying he’d run the country like an efficient business and ignite growth. It’s still possible he’ll get some wins in his trade disputes and other policy efforts, and be able to point to tangible economic success in the home stretch of the 2020 election.
But Trump is making enemies out of allies in the corporate sector, much as he has done with diplomatic allies in Europe, North America and elsewhere. The companies he’s feuding with and forcing into global workarounds are the key to the economy he wants to ignite. Trump may not know who his friends are.
Rick Newman is the author of four books, including “Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman