(Bloomberg Businessweek) -- Large corporations crave predictability, and the primary economic policy of Donald Trump is chaos. Whether it’s the threat of steep new tariffs or retribution, chief executive officers and their carefully drawn plans will once again be at the whims of a leader who’s emboldened to reorder the economy.
Trump has promised to roll back regulations, which is what companies like to hear, but as his first presidency showed, his compulsion to tear up the rules can be indiscriminate. Before Trump, modern US presidents didn’t publicly threaten to punish companies that refused to do their bidding. During his first administration, that was almost a weekly occurrence. Even if he rarely followed through, the threats were destabilizing.
Much of the corporate establishment didn’t want another four years of this chaos. The former CEOs of DuPont, Ford and PepsiCo were among those who signed a letter before the election expressing a desire to see Trump lose. Many current business leaders harbored the same feelings but were savvy enough not to express them publicly. After Trump won, the “big congratulations” started to trickle in on Elon Musk’s social network, X, mainly from technology executives who’ve been frequent targets of his ire.
There’s a sense among business leaders who spoke with Bloomberg Businessweek that Trump’s second term will be just as transactional as his first one. The playbook will call for a C-suite charm offensive at the White House or Mar-a-Lago and the issuance of an “America First” press release announcing, say, a factory in the US (regardless of whether that project is actually new or not). A good example of this was in 2019 when Apple Inc. CEO Tim Cook successfully lobbied Trump over dinner at the president’s golf resort in Bedminster, New Jersey, to exempt many of the company’s Chinese imports from tariffs. In exchange, Cook played along while Trump took credit for opening a plant in Austin that had been assembling computers since Barack Obama was in office and a separate $1 billion campus the company had previously announced.
Boeing Co. offers a cautionary tale. Trump got the company to offer a discount on the Air Force One fleet during his last presidency, something he bragged about in an interview with Bloomberg News in October. What he didn’t say was that Boeing has racked up almost $3 billion of losses on the roughly $4 billion contract as it grapples with cost overruns and delays. Trump also wants to paint the planes red, white and blue, something he pitched during his last presidency—even though the Air Force rejected the idea, saying darker colors raise the risk of components overheating and could require cooling modifications that would further increase costs and production time.
Most companies have learned from Boeing’s mistake, and those with enough clout or the right lobbyists expect to avoid disaster. Plus, with the Republicans’ gains in Congress, lower corporate taxes are also on the table and would provide a soothing chaser to escalating trade wars and the abuse that comes from governance-by-tweet. But CEOs acknowledge that, much like the rest of us, they really have no idea how a second Trump presidency is going to play out. The lead-up to the election was like a “Mad Hatter’s tea party,” says Nicholas Pinchuk, CEO of Snap-on Inc., a toolmaker based in Kenosha, Wisconsin, with about 13,000 employees. “Nobody knows what’s going to happen. We can project, but the projection isn’t so comforting.”
Defense companies in particular are “worried about the chaos factor,” says Rob Stallard, an analyst at Vertical Research Partners, an independent equity research firm. Trump plans to nominate Pete Hegseth, a Fox News television host and Army veteran who lacks experience in military or government leadership, as secretary of the Department of Defense. He’s also tapped Musk, a major backer of his 2024 presidential campaign, and financier Vivek Ramaswamy to lead a government efficiency commission auditing US spending. Musk’s SpaceX competes with Boeing and has defense contracts for its rockets and Starlink satellites worth billions of dollars. Defense accounts for the largest share of discretionary spending in the government’s budget, and that money isn’t always spent prudently. The Pentagon’s inspector general said in October that Boeing charged the Air Force a 7,943% markup on soap dispensers.
Trump’s threatened tariffs—which would levy as much as a 60% tax on Chinese imports, a barrage of duties on Mexican goods and 10% to 20% on trade with everyone else—would unleash a special kind of chaos on the economy. But neither investors nor manufacturers appear to be taking them all that seriously. The big numbers are likely a negotiating tactic, not the final policy, and companies are confident they’ll be able to pass any extra costs on to customers, according to Katie Nixon, chief investment officer of Northern Trust Wealth Management. “There’s going to be a lot of bargaining going on right now as Trump does turn up the temperature,” she says. “This is not our first rodeo.”
The last time he was in office, Trump frequently bashed the North American Free Trade Agreement, saying it unfairly bolstered Mexico’s economy. He negotiated a revised treaty that took effect in 2020 and called it “the most modern, up-to-date and balanced trade agreement in the history of our country.” But it did nothing to dissuade American companies from investing south of the border. In fact, his tariffs on China pushed many manufacturers to increase investments in Mexico as a way of circumventing the levies and keeping labor costs low. Last year, Mexico surpassed China as the biggest source of goods heading to the US, with almost $500 billion of exports.
Lennox International Inc. has been part of this yearslong migration. The company opened a factory in Mexico this year to build commercial air conditioners because its plant in Stuttgart, Arkansas, has struggled to find workers. A.O. Smith Corp. is also shifting work on a line of tankless water heaters out of China to a new facility in Mexico to avoid high tariffs. On the campaign trail this year, Trump threatened 200% tariffs on Deere & Co. products if the company followed through on plans to make some of its agricultural equipment in Mexico instead of Iowa. He then claimed the company canceled the move in response. It didn’t.
Stanley Black & Decker Inc. will move production to other parts of Asia and possibly to Mexico if Trump ramps up tariffs, CEO Donald Allan told investors in October. A $90 million facility in Fort Worth, Texas, that Stanley announced with much “America First” fanfare in 2019 closed last year; the toolmaker needed to rely heavily on automation to make the math work on US manufacturing, and the robots failed to deliver. After the election, Stanley warned that if Trump increases existing China tariffs to 60%, that will erase $200 million from its profits and would require a reordering of its supply chain that would take as long as two years. That plan assumes that Mexico isn’t also targeted by tariffs and that the Chinese ones won’t apply to more goods than before. It’s “unlikely that we’re moving a lot back to the US because it’s just not cost-effective to do,” Allan said.
Trump now wants a redo on his own redo of Nafta, and he’s proposed even higher tariffs on Mexican imports than he has for China, including a 200% levy on vehicles and as much as 100% on other goods. The economic fallout from such moves would be catastrophic. Barclays Plc analyst Julian Mitchell estimates that roughly half of all residential heating and air-conditioning systems sold in the US are made in Mexico. The country is also a major source of food and automotive parts. “All you have to do is build your plant in the United States, and you don’t have any tariffs,” Trump told Bloomberg News.
It’s not that simple. Factory workers are hard to find in the US, and because of geographic diversity and decades of offshoring, the supply chain simply doesn’t exist to support complete domestic sourcing for many products. Even companies that assemble in the US typically go abroad for some raw materials or components. Taxing other countries increases the likelihood they’ll reciprocate, which could adversely affect demand for US products. Siemens AG, a German manufacturing giant that relies on the US for about a quarter of its sales, curbed its use of imports after Trump’s last onslaught of tariffs and the disruptions of the pandemic, says CEO Roland Busch. That will mitigate the impact of any new levies, but he points out that tariffs raise the odds of an economic slowdown and drive inflation. “You’re just hindering free trade,” Busch says. “That would not really help.”
There’s good reason to believe that many of Trump’s comments are bluster and that he’s more likely to target Chinese companies than American ones importing components from abroad. He won’t want to be held responsible for the closure of a Midwestern factory when the operator can no longer afford to get the parts it needs, says Phillip Nelson, head of asset allocation at NEPC, an investment consultant that oversees $1.7 trillion of assets. Then again, Trump won’t have the prospect of reelection to think about this time.
What’s helped boost American factories lately is a fire hose of government funds from President Joe Biden’s Inflation Reduction Act and the Chips and Science Act, the clean energy and semiconductor manufacturing stimulus deals that Trump has promised to rework or unravel. There have been more than $875 billion in megaprojects—defined as construction blueprints valued at more than $1 billion—announced in North America since the beginning of 2021, according to industrial analysts at Melius Research. This is one of the few sources of optimism in a manufacturing economy enduring its longest period of weak demand since at least the dot-com crash in the early 2000s. At a minimum, the lack of clarity around these stimuli will keep shovels out of the ground for a while. At worst, the developments get canceled.
Biden’s climate law factored prominently in a decision by GE Vernova Inc. to invest $50 million in its plant in Schenectady, New York, and hire 200 employees to manufacture onshore wind turbines, says CEO Scott Strazik. Since then, Trump has continued to dismiss the threat of climate change and said windmills produce noise that causes cancer and makes whales crazy, neither of which is supported by scientific evidence. Offshore wind projects have been his primary target. That part of GE Vernova’s business faces a challenging path. But Strazik is adapting his pitch on other clean energy investments: The US needs more power for semiconductor factories and data centers powering artificial intelligence, and if America doesn’t invest in green technologies, someone else will, he says. Strazik acknowledges that defusing the political tensions around renewable energy isn’t easy. “Jobs help,” he says.
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