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Business Dynamics: Trump has Pro-Business Policies but Companies Remain Sceptical

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By: Sanchi Bhat

Euromonitor International’s USA Business Dynamics country briefing focuses on the economic superpower of the world. With the election result proclaiming Republican Donald J. Trump as the winning Presidential candidate, the business environment is poised to change. Trump’s pledge to review regulatory procedures that hamper business efficiency and reduce the corporate tax rate are intended to be business-friendly, which could provide the necessary increase in the country’s rankings in the business indicators based, on the principles of a free market economy, at a time when the country has been slipping in global business environment rankings. However, the business community remain sceptical as the embargo on immigration and protectionist stance on free trade arrangements such as NAFTA and TTIP could impact the US economy negatively. Euromonitor International’s Trump downturn scenario predicts an overall negative impact of a Trump victory on the US economy, at least in the short run, with a sharp economic slowdown expected in 2017.

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The USA has been experiencing growing government intervention in the economy

  • The Index of Economic Freedom ranking for the USA has declined from 9th position out of 179 nations in 2009 to 11th position out of 178 countries in 2016. This was largely due to inefficient and intrusive government regulations and an increasingly expensive regulatory burden;
  • The USA’s Ease of Doing Business Ranking in 2017 compared favourably with its peers but its ranking has slipped since its peak in 2008, from 5th to 8th position during the corresponding period, owing partly to a steep rise in difficulty associated with starting a business and protection of minority investors;
  • According to trade sources, the USA’s 2015 job openings rose while the hiring rate fell, signalling a skills shortage. Between 2011 and 2025, the number of jobs left unfilled due to skills shortages in the manufacturing sector is expected to increase by 233% (trade sources);
  • The federal minimum wage has not increased since 2010, although 31 states employ a minimum wage higher than the federal one. The USA’s wage per hour in manufacturing has remained stagnant in constant terms since 2010. However, it remains costly to hire workers in the USA as the average wage per hour in 2015 was the fifth highest in the world.

Protectionist stance outweighs the benefits of the easing regulatory burden

Trump’s policies reveal that they are focused on increasing the efficiency of businesses including a fall in the regulatory burden, reduction in tax rates and a decline in red tape with the expectation of facilitating business operations in the USA:

  • He has pledged to thoroughly evaluate and remove laws that hamper business growth such as the 2015 Waters Rule, designed to protect water resources, but requiring additional operating permissions for firms in the agriculture, oil and construction sectors. Trump’s dismissal of environmental concerns pose long term risks to businesses;
  • His general approach towards improving business efficiency could see a decline in the overall regulatory burden including procedures related to setting up a business such as getting electricity, dealing with construction permits and registering property. This would reduce the time and costs involved in setting up a business, improving the USA’s Ease of Doing Business ranking;
  • Trump is also expected to reform the tax regime, reducing the corporate tax rate from 35.0% to 15.0%, expected to increase the investment appeal of the USA;
  • Trump, however, fails to address several key issues which can potentially affect the USA’s business landscape in the long run. Trump’s policies on reducing income inequality in the USA, one of the worst in the developed world, and providing gainful employment for lower income groups are lacking. Hence, under a Trump administration, real wages for low skilled workers are expected to be stagnant or decline. This can potentially lead to declining demand for goods and services and impact profits for businesses
  • Furthermore, his policies on immigration, involving stricter and controversial visa regulations, are likely to lead to skills shortages in the economy causing productivity losses;
  • Firms operating in the trading sector can expect to witness increasing tariffs, higher trade barriers and rising uncertainty as free trade agreements are renegotiated. His protectionist stance on trade deals such as TTIP, TPP and NAFTA in addition to increasing import tariffs on Mexican and Chinese goods will increase business costs;
  • Euromonitor’s Macro Model forecasts a sharp economic slowdown on account of Trump victory with a forecast real GDP growth of just 0.2% in 2017 (compared to our baseline forecast of 2.1%).

 

For detailed analysis on Business Dynamics in the USA, click here.

 

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