- In today's CEO daily: Geoff Colvin on the effect of Trump's prices on business benefits.
- The big story: Forecastists are looking at a global recession.
- Markets: Worse from COVID in 2020.
- Analyst notes From JPMorgan, Wedbush, UBS and Oxford Economics on the risk of economic contraction under the new rules of global trade.
- More: All the news and the cool water-cool of Fortune.
Good morning. Today’s global economic chaos, triggered by President Trump’s new prices, can be shocking, but it’s not new. A similar story took place eight years ago during Trump's first term as president. A look at what he has done and the repercussions that followed, is instructive for business leaders, investors and consumers. And it is by no means encouraging.
Unlike his current mandate, Trump at the time did not immediately launch a trade war. He devoted his first year as president to the relaxation of commercial regulations and to a reduction in historical tax of the congress. The CEOs were jubilant. But then, in January of his second year, he showed why he declared a price. He imposed prices on China, then quickly widened the prices on other countries. The party was over. Specifically:
The prices have helped some American companies, but also injured thousands of others. For example, Trump imposed prices on imported steel – large for the handful of us, the aciometers, but a painful cost increase for the thousands of American manufacturers who use steel. Expand the steel example through the economy and the result was a hard blow for profits. During the first year of Trump (2017), before imposing prices, the profits from American companies increased by 8%. During the following five quarters, with prices, the profits obtained the opposite, narrowing 1.5%, annualized.
Shares were struck. From Trump's 2016 elections until the prices started in January 2018, the S&P 500 increased at an annualized rate of 27.3%. But with added prices, the S&P increased to only 3.8% annualized (January 2018 to November 2019).
CEOs have reversed their vision of Trump. Immediately after obtaining Trump in 2016, the bosses increased their confidence as measured by the Conference Board, and confidence was slightly varied from top to bottom around this new level during the first year of Trump. But shortly after having declared its commercial wars, the confidence of the CEOs plunged at levels which have not been seen since the worst days of the financial crisis in 2008-2009.
Note that Trump performs his main economic policies in the opposite order he followed during his first mandate. At the time, he made the tax bill first, then turned to the prices. Now, after having declared a historic trade war, it will spend a large part of 2025 on this tax bill, of which many elements are planned at sunset on December 31. He will try to maintain tax cuts for this bill and even reduce taxes. If he succeeds, he could regain his support currently reflux of business leaders, investors and consumers. But it is a great “if” and a great “power”. – Geoff Colvin
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This story was initially presented on Fortune.com
