Sunday 22 September 2019

Mohamed A. El-Erian: 'US business leaders should do more to shape Trumponomics'

Boost: US President Donald Trump’s policies have spurred growth in the United States. Photo: REUTERS/Yuri Gripas
Boost: US President Donald Trump’s policies have spurred growth in the United States. Photo: REUTERS/Yuri Gripas

Mohamed A. El-Erian

When asked about President Donald Trump's economic policies, most US business leaders are likely to offer a polite but nuanced response.

They welcome measures that have improved the operating environment for their businesses and sustained America's economic outperformance. But they also wonder whether more could have been accomplished by working across party lines and with international allies. That distinction is increasingly critical now the US is threatened by a rapidly slowing global economy and rising risks of financial market volatility.

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While views do - and should - differ on whether the Trump administration should have slashed taxes and regulations in a more efficient and equitable manner, most chief executives say their businesses received a boost. Tax burdens were reduced which, along with incentives to bring back cash held abroad, increased the scope for investments in plant and equipment, not to mention profits and share buybacks. Red tape was cut, reducing costs. Household confidence, underpinned by a solid labour market sustaining an above-trend pace of job creation, buoyed domestic demand for their products.

While opinions on the approach toward tariffs vary even more widely, CEOs generally welcome Trump's emphasis on a fairer international trading system. Incremental gains from the renegotiation of the North American Free Trade Agreement with Canada and Mexico would pale in comparison if the US is ultimately successful in reducing China's theft of intellectual property, forcible transfers of technology and subsidies of Chinese companies.

Technology firms will applaud the administration's efforts to push back against European initiatives to tax and regulate them. Some executives even feel Trump's unprecedented attacks on the Federal Reserve may have played a role in the central bank's remarkable U-turn toward a more accommodating monetary policy that lowers borrowing costs and, more importantly given the low interest rates, helps boost stock prices and favour stock options.

Overall, the issue for many US CEOs is less what the Trump administration has done than how it has done so. This is particularly the case on trade, but also other areas. That underscores what needs to change going forward.

Few expected China to concede quickly to US demands to level the playing field. Beijing's approach to technology and subsidies is part of a development strategy packaged in nationalistic rhetoric about regaining the country's proper standing in the world. But many CEOs feel changes would materialise faster if the US adopted a more unified approach with Europe. After all, those allies share the same grievances vis-à-vis China.

Scratch the surface and you will also find discomfort about the administration's eagerness to weaponise economic tools and make frequent use of sanctions.

They fear that what the US does to others can be done by others to them in a world where there is less and less respect for rules.

There's similar uneasiness about the president's attacks on the Fed. The central bank's political autonomy is seen as critical to its ability to maximise employment, minimise inflation and maintain financial stability. And while economic and financial stability is never a guarantee of business prosperity, the chances of success are a lot lower in a volatile macroeconomic environment.

These doubts are more urgent. Europe has lost most of its growth momentum, with Germany already contracting. Unusual political uncertainty, from the Brexit process in the UK and the leadership transition in Germany to complicated government turnovers in Italy and Spain, is slowing economic policy responses.

Europe's government securities dominate the highly unusual - and steadily destructive - universe of some $16trn (€14.5trn) of bonds trading at negative yields. And all this is happening while the European Central Bank struggles with policies that are proving to be less and less effective and risk doing more harm than good.

If the Trump administration wants to maintain the US economic outperformance that has helped business prosper, it needs to move on four main fronts:

:: Design and implement an infrastructure rehabilitation and modernisation programme to help boost growth;

:: Deepen labour-training and retooling efforts in order to offset growing shortages of skilled labour, enhance productivity and wage growth, improve labour-force participation, and reduce the troubling marginalisation and alienation of certain segments of the population;

:: Form a unified front with Europe to deal with China and lift faster the cloud of uncertainty associated with the continuous escalation of trade tensions;

:: Finally, adopt a more inclusive approach at home to support the most vulnerable in society, as well as more multilateral policy coordination to counter the risk of global recession and financial volatility.

The key is to make policy more strategic, more cooperative and less uncertain. Meanwhile, business cannot just wait for such a pivot. CEOs can do a lot more to rebalance the profit-wage equation, expand beyond shareholders in thinking about serving stakeholders, and broaden corporate social responsibilities. They could also do more to support the pursuit of these four goals.

CEOs know no matter how successful they are, it's hard for their companies to be good houses in a deteriorating global neighbourhood. They have a responsibility, just as the government does, to prevent that from happening. (Bloomberg Opinion)

Irish Independent

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