Donald Trump’s Economic Policies: Pro-Business, Not Pro-Market

Trump is eliminating lobbyists by putting them in charge of all departments.



Luigi Zingales
Luigi Zingales

After his election,1)This post was originally published in Il Sole 24 Ore. it was difficult to predict what President Trump would do. In the election campaign he said everything and the opposite of everything: from a 45 percent tariff on Chinese imports to the reintroduction of the separation of commercial and investment banks, from an aggressive use of antitrust authority to the total abolishment of Dodd-Frank, the financial regulation that was enacted after the crisis. After two months, it is clear that the Trump industrial policy will be pro-business, not pro-market.


It may seem to be a nuance, but there is a fundamental difference. A pro-business policy favors existing companies at the expense of future generations. A pro-market policy favors conditions that allow all businesses to thrive without any favoritism. A pro-business policy defends domestic enterprises with favorable rates and treatment. A pro-market policy opens the domestic market to international competition because doing so would not only benefit consumers, but would also benefit the companies themselves in the long term, which will have to learn to be competitive on the market, rather than prosper thanks to protection and state aid. A pro-business policy turns a blind eye (often two) when companies pollute, evade, and defraud consumers. A pro-market policy seeks to reduce the tax and regulatory burden, but ensures that laws are applied equally to all.


Paradoxically, a pro-business policy ends up damaging not only the economy, but also, in the long-run, those companies that it had originally benefited. This matters little to its supporters, because when the chickens come home to roost they will have already grossed billions. Angelo Mozilo, founder of Countrywide, the bank responsible for a large chunk of the toxic mortgages that led to the 2008 crisis, lives happily on the $600 million he accumulated, despite the enormous damage of the financial crisis that he helped to create.


During the presidential campaign Trump used many populist themes. The first signal that his policies will be neither populist nor popular, but strictly pro-business, is his choice of Cabinet members. Trump had promised to “drain the swamp” in Washington of lobbyists. Few realized that he would do that by making intermediaries pointless, as the lobbyists themselves would be in charge of the departments: the CEO of Exxon as head of foreign policy, a former Goldman Sachs partner at the Treasury, the daughter of a ship owner for Transportation, a raider at Commerce, etc.


The second signal was the president-elect’s picks to head the most important government agencies. As the head of the EPA, Trump placed a lawyer who sued the EPA in Oklahoma for the oil industry. As the head of the Securities and Exchange Commission (SEC), Trump has chosen a lawyer experienced in defending companies accused of fraud and international corruption. What’s more, the new chairman of the SEC is married to a partner at Goldman Sachs, a company regulated by the SEC.


The third signal was Trump’s threat to introduce a “border tax,” another name for a tariff on imports. This tax will not only serve the protectionist desires of some parts of U.S. industries, but also provide financial resources to cover the promised reduction in direct taxation. The tax would be contrary to the World Trade Organization’s rules. However, Trump has threatened that the U.S. will leave the WTO.


The worst signal, however, comes from the way Trump has used his tweets to attack and coax American businesses. United Technologies (UT) has been praised for its decision to cancel plans to close its plant in Indianapolis and relocate it to Mexico. Apparently this decision was the result of tax benefits offered by Vice President-elect Pence, who is the governor of Indiana. In truth, the decision seems motivated by fear of reprisals on government contracts, which represent a large sum of UT’s revenues. A fear that appears justified, as Trump attacked Boeing over the cost (which he considered excessive) of the new presidential aircraft and attacked Lockheed Martin over the F-35 aircraft. Trump is probably right on both counts, and this only adds to his popularity, but a president should address these issues by following the rules and not with an execution on the public square of social media.


With this strategy, Trump cleverly uses the carrot and stick approach. When Ford was publicly commended for deciding not to build a new plant in Mexico, the price of its shares rose 4.5 percent. Softbank did even better (+ 6.2 percent) after being praised by Trump for investing $50 billion in the United States. Softbank’s motive was simple: Softbank owns Sprint, a mobile operator that would like to merge with T-Mobile in order to increase market power. The authority to permit this merger lies with the new head of the Federal Trade Commission, yet to be named by Trump. Trump’s positive tweet feeds Softbank’s hopes that the merger will be approved.


We would expect such behavior from a dictator of a banana republic, not from the President-elect of the oldest democracy in the world. The Trump presidency has begun in the worst possible way for all those who, like me, still believe in the market.


Disclaimer: The ProMarket blog is dedicated to discussing how competition tends to be subverted by special interests. The posts represent the opinions of their writers, not those of the University of Chicago, the Booth School of Business, or its faculty. For more information, please visit ProMarket Blog Policy.  

References   [ + ]

1. This post was originally published in Il Sole 24 Ore.


  1. Excellent blog explaining, in clear terms, the difference between pro-business and pro-market policies. Sadly, our politicians haven’t got a grasp of this fundamental issue, which is at the heart of the free market economy.

    There is another problem. Whereas Governments routinely make statements in public at every opportunity on their pro-market policies, behind the scenes they are actually busy implementing pro-business actions – which amounts to duplicitous behaviour. It is this two-faced conduct that confused voters, in particular millennials, during the recent US election.

    This applies equally in the UK . Here is a classic example.

    The clear message behind the UK Government’s defence procurement policy is that military equipment for the Armed Forces is to be purchased through fair and open competition – the only exceptions being off-the-shelf purchases and single-source contracts.

    This is to be achieved by selecting the preferred Prime Contractor from a choice of industry teams by running a multiple-phase, winner-takes-all competition on the basis of a level playing field, genuinely open to all-comers including non-domiciled suppliers – to ensure it gets the very best value for money for the taxpayer.

    However, the ‘sudden death’ competition (which reduces the field of Bidders from six to one following a one-off release of the invitation to tender) currently used by MoD has been rendered ineffective by Defence Contractors, who are quoting identical bottom-line Selling Prices against the same Requirement – which amounts to price-fixing on a grand scale, with the active connivance of the Secretary of State for Defence. This is completely at odds with protecting the MoD’s commercial interests, which is what Ministers are so fond of telling the public. Worse still, MoD’s Project Team Leader at Abbey Wood, Bristol is being denied the opportunity to choose the single Prime Contractor on the basis of price competitiveness, and therefore value for money.

    This has come about because MoD’s long-standing policy of disclosing the total budgeted expenditure figure or associated year-on-year financial funding profile in the ITT has resulted in Defence Contractors quoting identical bottom-line Selling Prices in their ITT responses – an entirely predictable result!

    It is not for MoD to tell the Private Sector what the price of a new equipment programme should be. Instead, it is very much the business of Defence Contractors to tell MoD how much each new equipment programme will cost, based upon the prevailing value of goods, services, labour and finance in the free market shaped, not by the interfering hand of people in the pay of the State who always get it wrong, but by competitive market forces.
    @JagPatel3 on twitter

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