Wall Street was booming after the presidential election last November. Big business was planning a wave of investment, and global multinationals were shifting operations to the United States.
The expectation was that president Donald Trump would run a pro-business, pro-enterprise administration. Yet there has been little sign of it so far.
The president’s time in government has been dominated by a huge round of tariffs – a disguised tax, and one that will provoke chaos in supply chains.
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We have seen chaotic policymaking, damaging confidence, with plans changing day by day. And we may even see tax rises on the rich. It has hardly been an inspiring mix, and it is not a great surprise that US businesses’ confidence has fallen sharply over the last few months. Wall Street has recovered most of its losses from the spring, but there has not been any sign of a “Trump Bump”.
Over the next few weeks, Trump will have one last chance to fix that. The Budget set to be agreed this month gives him a chance to push forward with his deregulation agenda. Some of the early signs are promising.
The deal under discussion includes a loosening of financial regulations, easing the restrictions on bank capital that were imposed after the crash of 2009. The banks have complained that the rules are so tightly written that they effectively prevent them from lending nearly as much as they could. The result? Small firms have been starved of credit. Sure, the regulators need to make sure there is not another crash, but they also need to allow the banks to do their job. If the rules are loosened, it will help the economy.
We may finally see some of the work of Elon Musk’s Department of Government Efficiency, or DOGE, bearing fruit. Even though Musk is stepping back to try to fix Tesla, DOGE has made progress on rooting out waste. It has managed to cut back on spending on diversity, equality and inclusion (DEI), returning the government to the simple principle of hiring the best person for each job, and perhaps more importantly, it has persuaded many of America’s biggest companies to ditch the DEI baggage.
Likewise, a bill to create a legal framework for cryptocurrencies is making its way through Congress, and that may well cement America’s lead in the industry. And of course, the Budget may well include significant tax reforms, even if the president has floated the idea of an extra tax for anyone earning more than $2.5 million a year to help pay for the cuts for the middle class.
Can Trump beat his impressive first-term record?
Add it all up, and some progress has been made. But it is nothing close to what was achieved in Trump’s first term. In his initial four years in the White House, Trump managed to slash the rate of corporation tax, which had turned into one of the highest in the world, to make it competitive again with other major developed economies.
He set up investment zones, sometimes as little as a few blocks in size, to revitalise run-down areas in inner cities. And he at least tried to cut back on red tape with a law to force legislators to cut two regulations for every new one that was enacted. It was a successful mix, and one that was rewarded with decent levels of growth, rising wages, and a booming stock market. Nothing like as much has been achieved in his second term.
The administration should be doing far better. It won a decisive victory at the election, and the Republican party controls Congress. There is very little standing in Trump’s way. He could be cutting spending more systematically to try and get the budget deficit under control. He could be cutting back on the waste of his predecessor’s vast industrial subsidies. He could be dealing with the regulations that have been imposed over the last 20 years.
And he could be fixing a complex corporate tax system that still holds back investment and exports jobs and investment to countries such as Ireland. If president Trump doesn’t deliver on his promises of boosting confidence and turbo-charging growth, the US economy is going to face a sharp slowdown very soon, and potentially even a full-blown recession – and it is hard to imagine that he wanted that.
This article was first published in MoneyWeek’s magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.
