Was Trump’s first term really pro-business?

It is widely acknowledged that Trump’s deregulation and lower taxes benefited big business. While this is true to an extent, the benefits of certain policies have been overstated, with others proving detrimental to US business. It is worth evaluating his effect in his last two months as president on big business and the economy, which the Trump campaign claims is one of his greatest achievements.

 

The stock market, specifically Big Tech, has boomed under Trump. Before the pandemic, the Dow Jones had climbed 62% since Trump’s election.  The top 10 largest firms in the S&P 500 constitute 25% of its total value, up from 17% in 2018 – this being one of the highest figures in recent history: Google dominates the online search market, with a 93% share; Microsoft leads the operating system market with a 78% market share; Facebook has a 72% share of global social media, and Amazon has a 37% share of US e-commerce. Despite accusations of monopolistic power, Trump has refused to pursue antitrust cases, instead employing a policy of deregulation which has created hundreds of billions of dollars for shareholders of Big Tech. Not pursuing major antitrust cases has been Trump’s greatest gift to corporations.

 

However, the flagship Trumpian pro-business policy was the 2017 Tax Cuts and Jobs Act, which was mostly focused on altering household taxes. Apart from the permanent decrease in corporate tax rates from 35% to 21%, there were few elements that directly benefited firms. These reductions were estimated to produce 1.35 trillion USD in corporation tax savings between 2018 and 2027, only a minority of which (320 billion USD) would accrue to large businesses. Annual savings would average 135 billion USD, which compared to the 2.25 trillion USD in total profits generated by US firms in 2019 is negligible. Therefore, the direct benefits to firms, especially amongst the largest, were very limited.

 

Additionally, the impact of the 2017 act to firms was undermined by the practices that they use to maximise the tax efficiency of their earnings. Sophisticated methods such as sheltering foreign profits in tax havens, paying management and employees in tax free stock options and strategically using tax and Research and Development (R&D) credits to reduce their tax bill. As a result, many firms pay little or zero tax, some even managing to secure rebates despite generating strong operating profits – for example in 2019, Amazon secured a 129 million USD rebate from the federal government on profits of 11 billion USD. Before the act, many of the largest firms already utilised these methods, with 379 profitable companies listed in the Fortune 500 averaging 11.3% tax rates, half of the lowered corporation tax rate. Additionally, it was found that the number of Fortune 500 companies paying zero tax doubled from 30 in 2017 to 60 in 2018, the period in which the policy took force, despite the fact that they generated 80 billion in pre-tax profits. It seems, therefore, that the 2017 act did not achieve what Trump intended.

 

Finally, the imposition of tariffs and the subsequent trade war with China was hugely detrimental to firms. It initially started with tariffs on steel and aluminium, with round after round of retaliatory action on each side following. In 2019, tariffs ranging between 10% and 25% impacted 460 billion USD of imports, increasing the cost burden by $57 billion USD. As larger firms are more likely to have international supply chains, the tariffs were more detrimental to them.  Many firms across several industries formed anti-tariff lobby groups. It thus seems clear that these tariffs were harmful to corporations.

Ultimately, despite priding himself on a pro-business agenda, most of Trump’s policies produced little direct benefit to firms. It is true that by letting Big Tech companies surge to extremely high valuations and allowing them to develop almost governmental power, domestic stock markets have been propelled to various record highs. However, the policies he did pursue such as the 2017 tax cut were largely ineffective, and his ideological trade war with China greatly harmed US business. Nonetheless, this is not to say that Trump ‘failed’, and it may turn out that Biden’s increased regulation and tax increases will harm big business severely.

 

By Jon Garner

Sector Head: Jackson Philips

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