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.
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 biggest blessings for business were front-loaded. “The U.S. is going to substantialy [sic] reduce taxes and regulations on businesses,” he tweeted six weeks before inauguration. In his first year as President he earned the approval of businesspeople in large part by keeping those twin promises.
Widely underappreciated is the importance of his deregulation agenda—regulatory relief, as supporters call it—which plays out mostly below the radar. A few rollbacks of environmental rules have made it to the front page, as have changes to hot-button political issues such as contraceptive coverage mandates in insurance and transgender student rights. But for most businesspeople, those aren’t nearly as important as the thousands of obscure but unavoidable rules and regulations that multiply annually in the pages of the Federal Register—97,110 pages in 2016, an all-time high, which has come down to 68,082 last year. “Mariner radar observer endorsement,” “locomotive engineer certification revision”—such rules make most eyes glaze over, but each one is a big deal to businesses somewhere.
The Trump administration is using a novel strategy to guide deregulation, detailed in one of Trump’s first executive orders. It became known in the media as “one in, one out,” meaning an old rule must be expunged for each new one added, but that isn’t how it works. For decades major new rules have been evaluated on projected costs and benefits. Trump’s executive order gave regulators an annual budget for net new costs. The budget for 2017: $0. Regulators went well beyond that, delivering almost $10 billion in claimed savings. Budgets for fiscal 2018 and 2019 were more ambitious, and government reports, plus estimates by outside analysts, suggest regulators have saved a total of $42 billion in net-present-value costs. The White House claims this approach to regulation, if continued, will increase GDP by 1.0% to 2.2% over the course of a decade.
It’s easy to dispute such claims, which are speculative by nature, but businesspeople say they don’t need numbers. They noticed a change almost immediately after Trump took the oath of office. Regulators became less adversarial. Getting permits and approvals is quicker and easier. “The attitude shift was palpable,” says Andrew Liveris, former CEO of Dow Chemical. “The tone is set from the very top office, and the tone shift was noticed by all the regulatory agencies.” Parts of Trump’s business deregulation have enraged opponents, but businesspeople on the whole are grateful for it. They’d like to see it advance even faster.
Trump delivered on the other part of his promise to business, lower taxes, when he signed a once-in-a-generation tax overhaul, the Tax Cuts and Jobs Act, at the end of 2017. The debate in Congress was bitterly partisan—no Democrats in the House or Senate voted for the bill—mainly because of changes to the individual income tax. The TCJA lowered the top tax rates on ordinary income as part of changing the tax brackets and broadly lowering rates, and it limited deductions for state and local taxes, which angered legislators from high-tax states. But the part of the bill that reworked corporate taxes was a different story.
It’s hard to imagine a time when any major change in economic policy could attract bipartisan support, but both parties had agreed for years that the U.S. corporate tax system badly needed fixing. The U.S. had the highest corporate tax rate of any developed economy, 35%, though deductions and credits meant few companies paid that rate. The U.S. was also one of the few major countries that still taxed a company’s income worldwide if it was brought back home, giving companies a strong incentive to leave non-U.S. earnings outside the U.S. One result: an estimated $2.6 trillion of assets parked elsewhere. Another result was a rash of corporate “inversions” in which U.S. companies moved their headquarters overseas to escape their tax disadvantage in global business.
The TCJA fixed those problems. It lowered the corporate tax rate to 21% and adopted the so-called territorial system used by most developed countries, in which companies pay local taxes in each country where they operate. Those combined changes put the U.S. in line with other major economies. The law thus eliminated the incentive for inversions, and it also imposed specific penalties on inversions for 10 years after enactment. No significant inversions have occurred since, though Treasury Department rules adopted during the Obama administration in 2015 and 2016 had pretty well stopped them already.
Most of the partisan sniping over corporate taxes came not before the law was enacted, but after. What would companies do with all that money they weren’t paying in taxes and all the money they could now bring home tax-free? Trump’s Council of Economic Advisers argued that much of it would go to workers as companies invested a portion of that new money in capital, which makes workers more productive and leads to higher pay. Bottom line, said the CEA, a corporate rate reduction to 20% (not the 21% actually enacted) would eventually increase average household income by $4,000 to $9,000 a year.
It was a long-term projection, but the White House rarely mentioned the “long-term” part, implying the pay raise was right around the corner. It wasn’t. An appraisal of the TCJA by the Congressional Research Service found “no indication of a surge in wages in 2018 either compared to history or relative to GDP growth.” Expecting a jump in wages would have been unrealistic anyway. Economists across the political spectrum agree that the TCJA’s effects on employment and pay will take years to play out.
The repatriation story was similarly dissatisfying, again because of inflated expectations. The TCJA sparked a strong surge in repatriation, as predicted, but there’s little or no evidence that it noticeably increased business investment or went directly to workers. Companies did spend much of it buying back stock, however, igniting charges of corporate greed. But none of this should have been surprising. A repatriation tax holiday in 2004 produced much the same results. In addition, sending money back to shareholders is no sin; it’s their money. What’s most striking about today’s buyback wave, largely unpredicted, is how extremely concentrated it is. Of all the planned buybacks announced since the TCJA was enacted—slightly over a trillion dollars’ worth, says Americans for Tax Fairness, a left-leaning advocacy group—just 10 companies account for 37%. Just one company, Apple, accounts for 16%. Mega-buybacks are a big phenomenon, it seems, but not a broad one.
The corporate tax overhaul was overhyped by its proponents. It didn’t work miracles in its first year. Its most important effects will be long-term, and it should make U.S. business more competitive.
That was the good stuff, and it was very good. From Election Day 2016 to Jan. 26, 2018, almost exactly a year after Trump’s inauguration, stocks roared; the S&P rose at a 27% compound annual growth rate. Corporate profits, already high, kept climbing—up 8% in constant dollars from first quarter 2017 to first quarter 2018. 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.
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.
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.
Trump launched trade hostilities ostensibly to combat China’s abuse of its trading partners with regard to intellectual property and technology transfer, a goal that most businesspeople endorse. “The administration is right about China’s behavior,” says Neil Bradley, chief policy officer at the U.S. Chamber of Commerce. “But further escalation would not be helpful. Tariffs are a tax and a drag on the economy.” How Trump de-escalates is far from clear. “Unwinding the tariff situation with China will take a long time,” says an experienced China hand. “It shouldn’t, but it will. He’s Tariff Man. Lord knows what he’s going to do with the rest of the world.”
Renegades in Waiting
As much as Trump’s on-the-fly policymaking scares business leaders, many are more frightened by some of his Democratic rivals’ stated positions. Read more here.
Here’s a surprise for those who remember arenas filled with Trump supporters chanting “Build that wall!”: There have been no major changes to immigration law during the Trump administration. In addition, deportations are down significantly from the Obama years—about 276,000 per year under Trump vs. Obama’s 383,000 a year, the most of any President. As for the wall, about 60 miles of existing barrier along the nearly 2,000-mile Mexican border have been replaced, but no wall has been built along unfortified stretches of the border.
Is Trump’s immigration policy a bust? Far from it. Immigration to the U.S. has fallen sharply. The trouble is, if there’s one thing on which a vast majority of economists agree, it’s that this is bad news for American business and the economy.
About 200,000 immigrants came to the U.S. last year, the fewest in over a decade. As recently as 2014, the number was over a million. Trump achieved this dramatic reduction—without new laws, increased deportations, or a wall—by turning the administrative dials available to a President. He has used “hundreds of policy memos, regulatory changes, and more,” reports Sarah Pierce of the Migration Policy Institute, a nonpartisan think tank. For example, he has “tapped U.S. Citizenship and Immigration Services and the State Department to increase vetting of prospective immigrants and to slow their admission to the United States,” she writes in a study of Trump’s immigration policies. From border crossings in Arizona to visa offices at U.S. embassies worldwide, he has redirected policies and practices to keep more people out.
U.S. business overall hates these changes for obvious reasons. Tech companies in Silicon Valley want immigrants with Ph.D.s to work for them; the whole U.S. technology sector is unimaginable without immigrants. A 2018 report, based on 2016 Census data, found that 71% of tech employees in Silicon Valley are foreign-born. It isn’t just tech. Farmers across the country rely on immigrant workers. Trump’s immigration crackdown is one reason U.S. farmers are in crisis; his trade war and the retaliatory tariffs on U.S. agricultural products imposed by China are another. Holtz-Eakin says, “Some businesses and sectors rely heavily on non-native workers, and Trump basically blew it up.”
On a larger scale, immigrants are crucial to U.S. economic growth because without them the population will shrink. The U.S. birth rate dropped to 1.73 per woman last year, the lowest ever and far below the replacement rate (the average number of births per woman needed to maintain the population) of 2.1. Without substantial immigration, the U.S. population would shift into reverse, as is already happening in Japan and Italy, quite possibly pulling GDP down with it. A shrinking country and economy are terrible for business. “The easiest way to boost GDP growth would be to allow large numbers of skilled immigrants into the country,” says Steven Davis, an economics professor at the University of Chicago. “But that is not on the agenda.”
An important element of Trump’s immigration policy has nothing to do with specific rules or procedures. It’s the creation of a general fear among potential immigrants that even if they get into the U.S., they might not be allowed to stay, and even if they could stay, they might not be welcome. “Long-term, the U.S. is seen as less welcoming,” says Davis. “That has an effect on students and entrepreneurs that’s potentially quite harmful to the U.S. We’ve had a great advantage in attracting the most motivated people in the world.”
Consider some of the highest-value and most motivated potential immigrants, applicants to U.S. business schools. Applications from foreign students plunged 14% this year, the steepest decline in foreign applications among all countries, says the Graduate Management Admission Council. In contrast, foreign applicants to business schools in Canada and Europe increased. The drop in the U.S. “is related to students’ concern about how long they’ll be allowed to stay after graduation,” says Matthew Slaughter, who served on George W. Bush’s Council of Economic Advisers and is now dean of Dartmouth’s Tuck School of Business. “The visa law hasn’t changed, but the administration of it has. Through social media, students worldwide know about it. There’s a perception of, Am I welcome here?” That’s a problem because immigrants are essential to new business creation, the foundation of economic growth. Nearly half of all Fortune 500 companies were founded by immigrants to the U.S. or their children, says the Center for American Entrepreneurship, a nonpartisan policy group. More than half (55%) of startups worth at least $1 billion have at least one immigrant founder, according to the National Foundation for American Policy, a nonpartisan research group.
Donald Trump prides himself on being unpredictable. He has said for years that it’s a key element of his negotiating strategy, and he wrote in his book Crippled America, “I don’t want people to know exactly what I’m doing—or thinking. I like being unpredictable. It keeps them off balance.” He brought that style to the White House, abruptly reversing positions on such weighty matters as NATO (it’s obsolete; no, it isn’t), China (it’s a currency manipulator; no, it isn’t), the Export-Import Bank (it’s useless; no, it’s a good thing), cutting payroll taxes (considering it; wouldn’t dream of it), and many more. But the President is more than a negotiator. He is also, among other things, America’s chief policymaker, and in that role unpredictability can be seen as unreliability or untrustworthiness. He has dramatically increased the uncertainty surrounding U.S. policy on multiple issues, and considerable evidence shows that it’s significantly harming the economy and business.
Policy uncertainty has actually been measured going back to 1985 by economists at Northwestern University, Stanford University, and the University of Chicago, who created a widely used monthly policy uncertainty index based on computer analysis of news articles. In the Trump administration, economic policy uncertainty has spiked to levels not previously seen except in crises—9/11, the financial crisis, the 2013 government shutdown. Uncertainty on trade policy in particular is at levels seen only once before, during the negotiation and ratification of NAFTA—except that back then the uncertainty quickly passed, while this time it has remained elevated for months. There has been “a tremendous upsurge in anxiety and uncertainty about trade policy and its economic fallout,” write the University of Chicago’s Davis, Scott R. Baker, and Nicholas Bloom, who together created the index. They also measure uncertainty in Japan and China, where results are similar. Their conclusion: “President Trump’s protectionist policies, threats, and bellicose rhetoric have brought about an extraordinary rise in trade policy uncertainty inside and outside the United States.”
That’s trouble because uncertainty hurts economies. We all know from life experience that uncertainty paralyzes, but if you aren’t convinced, a large body of economic research supports the point. Many studies show that companies invest less and hire less when uncertainty is high. As companies stop reallocating capital and labor, productivity and output slow down. It gets worse. Even as greater uncertainty freezes business activity, it also subverts efforts to fix the problem because it makes consumers and companies less responsive to cuts in interest rates and taxes. So it’s possible that Trump-induced uncertainty is taking the oomph out of his own tax cut and the Fed’s rate cuts.
The result is significantly slower economic growth. Economists at the Fed recently calculated that trade policy uncertainty had reduced GDP 0.8% by mid-2019 and would reduce it 1% by mid-2020. Those are big numbers in a slow-growing economy. For Trump the slowdown is a self-inflicted wound, but U.S. businesses (and consumers) are feeling the pain.
Debt and deficits
The U.S. has entered unexplored financial territory in the past three years as Congress and President Trump put the federal government much deeper into debt while the economy is growing. Plus-sized federal deficits are standard practice in recessions, but not during expansions. Yet soon after the Tax Cuts and Jobs Act became law, Congress passed extra-large spending bills, which, together with the tax cuts, caused the deficit to mushroom; Maya MacGuineas, president of the nonpartisan Committee for a Responsible Federal Budget, called it “fiscal malpractice.” This past July, Congress passed another lavish spending bill that MacGuineas said “may end up being the worst budget agreement in our nation’s history.” The result, the Congressional Budget Office forecasts, is trillion-dollar annual deficits for at least the next decade.
And that assumes no recession, which probably is not realistic. Recessions automatically increase deficits as tax revenues shrink and spending grows, because more people apply for unemployment benefits, food stamps, and other benefits. So the CBO forecasts almost certainly understate the weight of the debt burden that Washington has loaded onto future generations.
Trump obviously didn’t do this by himself. Just the opposite: Both parties abandoned fiscal responsibility with gusto. But a President is the natural leader of fiscal policy, and of course none of it can happen without his signature.
Federal debt and deficits are a long-term problem that most likely won’t hurt business this year or next or the year after. But it can’t be avoided forever. “There’s uncertainty about how you resolve it,” says Holtz-Eakin. “If you do it with a sovereign debt crisis, that’s not a growth strategy. High taxes are not a growth strategy. The solution won’t be good, and it’s only a matter of time before we have to face it.”
It wouldn’t be complicated for Trump to transform himself back into a President who’s good for business. “When you’re in a hole, stop digging,” advises the Tuck School’s Matthew Slaughter. Businesspeople would love an immigration policy that prioritizes the value immigrants can bring to the economy rather than keeping people out. They want China to stop forcibly extracting U.S. technology and intellectual property, but they don’t want the U.S. economy held hostage in the process. And they’d like it all done in a stable, rational, predictable way, which is the way they try to run their businesses.
Doing all this wouldn’t be complicated in theory. But in practice it appears almost impossible. Trump’s stances on immigration and trade were the central themes of his 2016 campaign, and all evidence suggests they’ll be at least as important in 2020. Unpredictability is part of his essence. Asking him to change any of these things would be asking him to repudiate what got him to the White House when every expert on the planet said he couldn’t do it.
He isn’t going to change course. For businesspeople, today’s Trump is no longer the friend he briefly was.