When it comes to gauging the full costs of Mr Trump, America Inc is being short-sighted and sloppy….
The trouble is that companies are often poor at assessing nebulous risks, and CEOs’ overall view of the environment is fallible. During the Obama years corporate America was convinced it was under siege when in fact, judged by the numbers, it was in a golden era, with average profits 31% above long-term levels. Now bosses think they have entered a nirvana, when the reality is that the country’s system of commerce is lurching away from rules, openness and multilateral treaties towards arbitrariness, insularity and transient deals.
As the contours of this new world become clearer, so will its costs to business in terms of complexity and predictability. Take complexity first. One of the ironies of the Trump team’s agenda is that, although they want to get out of businesses’ hair at home, when it comes to trade they want to regulate. When they tinker with tariffs, large numbers of firms have to scurry to respond because they have global supply chains. The steel duties proposed in March cover a mere 0.5% of American imports, but so far this month 200-odd listed American firms have discussed the financial impact of tariffs on their calls with investors. Over time, a mesh of distortions will build up.
Because trade is becoming more regulated, a new surveillance bureaucracy is sprouting. On May 23rd the Department of Commerce launched a probe of car imports. A bill in Congress envisages vetting all foreign investment into America to ensure that it does not jeopardize the country’s “technological and industrial leadership in areas related to national security”. American firms have $8trn of capital sunk abroad; foreign firms have $7trn in America; and there have been 15,000 inbound deals since 2008. The cost involved in monitoring all this activity could ultimately be vast.
As America eschews global co-operation, its firms will also face more duplicative regulation abroad. Europe has already introduced new regimes this year for financial instruments and data.The expense of re-regulating trade could even exceed the benefits of deregulation at home.