EconoMatters, Rethinking America

Trump’s Playing Loose with the Law: A Global Perspective

Trump might seem pro-business, but he could do great harm to U.S. corporations and their worldwide interests.

Credit: R. Gino Santa Maria Shutterstock.com

Takeaways


  • Trump might seem pro-business, but he could do great harm to US corporations and their worldwide interests.
  • Authoritarian leaders around the globe are already citing Trump’s demonization of the news media approvingly.
  • Most of the nations ranked in the Top 20 in the World Bank’s Ease of Doing Business report would score well on protecting human rights.
  • Italy’s economy performed worse during much of the Berlusconi years than any country in the world other than Zimbabwe.
  • While Russia was hardly a capitalist paradise before Putin, his favoring of state firms has badly hurt Russia’s entrepreneurial activity.

Throughout his first ten months in office, President Trump has portrayed himself not only as a champion for workers – a debatable claim – but also an important friend to American business.

Trump’s moves

He has stacked his cabinet with former executives. He has repeatedly vowed to cut through tangled regulations to help a range of companies including financial firms, energy firms and many others. His plans to slash regulation may have powered a continuing Wall Street bull market.

Perhaps most important, Trump now has made corporate tax reform a top priority. Working with several top congressional officials, U.S. Secretary of the Treasury Steve Mnuchin and Trump’s chief economic advisor, Gary Cohn, have sketched out a plan that would dramatically lower corporate taxes.

Such a reform, which is being debated in Congress now, would likely be a boon for shareholders and corporate executives. It may also spark more business investment in the United States, although some tax specialists question whether this will occur.

Tax reform: The big play

And indeed, despite CEO resignations from various Trump consultative councils, as CEOs balked at being associated with some of Trump’s comments on cultural issues, the business community still has high hopes for his administration.

The Business Roundtable, a group representing leading CEOs, has run a major ad campaign promoting tax reform.

Grover Norquist, a leading conservative activist, told reporters that, despite Trump’s controversies, big companies are getting “100 percent support behind” the president’s tax reform plans.

Are populists good for business?

But in the long run, Trump could actually do significant damage to U.S. business – and many corporations are not fully cognizant of the dangers he poses.

Dangers lie just over the horizon – and can be seen by studying how other, Trump-like populists around the world have seized control of and damaged their economies over time.

Trade deals in the firing line

Although Trump has made deregulation and corporate tax reform central to his economic agenda, the potential risks of his administration to businesses are emerging. He has publicly mooted ending the U.S.-South Korea trade deal.

Trump has, of course, already pulled the United States out of the Trans-Pacific Partnership. He used a major speech in Vietnam earlier this month to denigrate trade deals in Asia. The White House could pull out of the North American Free Trade Agreement as well.

If American companies have only partly factored in that Trump may not align with them on immigration and trade, they are even less prepared for other potential dangers posed by his administration.

Democracy no longer central

The Trump administration has made clear that it views rights and democracy as no longer central to U.S. foreign policy. Secretary of State Rex Tillerson this year did not present the State Department’s annual country reports on human rights.

In addition, he is reportedly thinking about removing democracy promotion from the State Department’s mission.

Rights abuses might seem immaterial to some businesspeople — but they shouldn’t. They raise a bigger concern. If countries believe that the United States is no longer interested in enforcing human rights and the rule of law, those nations’ disregard of laws could easily be extended.

And once this slide in legal standards concerns property rights, intellectual property protection and other areas investors care deeply about, U.S. corporations will immediately feel a steep price to pay.

Ease of doing business

Indeed, there is a close correlation between countries that uphold human rights and those that uphold the rule of law on business-related issues. Most of the nations ranked in the Top 20 in the World Bank’s most Ease of Doing Business report also would score well on protecting human rights.

Trump’s see-no-evil policy emboldens autocrats. Cambodia’s autocratic prime minister Hun Sen, who recently outlawed his country’s opposition party, as well as other authoritarian leaders are already citing Trump’s demonization of the news media approvingly, for instance.

This Trump effect will help undermine the rule of law in many more nations, including ones where U.S. companies are invested heavily.

The Trump presidency cannot be viewed in isolation. Some of the populist nationalists – from Putin and Berlusconi to Chavez, Orban and Erdogan – are also reported to use their power, and their ability to weaken the rule of law, to boost their own bottom line.

This is the type of self-dealing that does not seem out of the question in the United States now.

Worrying examples

The results in other economies where populists have ruled for extended periods of time are not encouraging for American businesses. Berlusconi badly wrecked the Italian economy. He left the country in worse shape than he inherited it. (According to The Economist, Italy’s economy performed worse during much of the Berlusconi years than any country in the world other than Zimbabwe).

Chavez and Maduro have left Venezuelans starving to death; the rule of law in Venezuela before them has been totally shattered, not only crushing democratic politics but also making the country a nightmare for investors.

And while Russia was hardly a capitalist paradise before Putin took over, his favoring of state firms has badly hurt Russia’s entrepreneurial activity.

In a country packed with tech-savvy potential entrepreneurs, young Russian inventors and financiers now flock to London, Berlin or Silicon Valley. U.S. businesses, which have so far been backers of the president, might well heed these examples.

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About Joshua Kurlantzick

Joshua Kurlantzick is fellow for Southeast Asia at the Council on Foreign Relations.

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