3 key ways Donald Trump is sabotaging his own plan to save American businesses

3 key ways Donald Trump is sabotaging his own plan to save American businesses
WASHINGTON, DC - FEBRUARY 02: (AFP OUT) U.S. President Donald Trump listens as television producer Mark Burnett introduces him at the National Prayer Breakfast February 2, 2017 in Washington, DC. Every U.S. president since Dwight Eisenhower has addressed
Source: Win McNamee/Getty Images
WASHINGTON, DC - FEBRUARY 02: (AFP OUT) U.S. President Donald Trump listens as television producer Mark Burnett introduces him at the National Prayer Breakfast February 2, 2017 in Washington, DC. Every U.S. president since Dwight Eisenhower has addressed
Source: Win McNamee/Getty Images

The stock market has pulled back since hitting historic highs in the wake of President Donald Trump's election victory.

After passing 20,000 on Jan. 25, the Dow Jones Industrial Average closed below 19,900 Thursday, while the S&P 500 walked back gains over the same period.

On one hand, it's best not to read too much into the market's daily (or weekly) machinations. After all, Friday's jobs report could reverse the trend, and the pullback is likely, at least in part, because companies are in the midst of reporting earnings — some disappointing.

But on the other hand, there's reason to believe the weaker performance also reflects a waning investor "honeymoon" with Trump and his promises to help U.S. businesses, as Tim Mullaney writes for MarketWatch.

That could be because investors are finally starting to take Trump "literally," as Ben Casselman put it: realizing that his proposed business-friendly moves — like bringing corporate taxes down and reducing regulations — might not be enough to make up for the president's market-threatening flaws, including his unpredictability, willingness to bash trade allies and isolationism.

"A measured approach is the number one thing the business community needs to hear from Trump right now," said Bankrate economist Mark Hamrick. "The competency... [and] capability of the administration is a concern."

For example, the executive order barring travel from certain countries, Hamrick said, might not have been so disruptive — at least from a business standpoint — had there been a greater impression it was properly vetted, a sentiment that was echoed on the latest cover of Businessweek.

And Trump's travel ban — which could potentially stymie innovation and end a program that specifically brought startup founders to the U.S. — is just one example of a constellation of policies that could offset economic benefits of the president's more business-friendly plans.

Here are three major ways Trump is shooting himself in the economic foot.

1. Trump is alienating big trade partners 

The president has not demonstrated the diplomatic tact of his predecessors, having reportedly contentious phone calls with heads of state from both Mexico and Australia, conversations he defended Thursday morning. 

The Australia call came as a particular surprise, as the nation is one of the United States' most important allies on security and trade, Bloomberg noted.

But Mexico and Australia aren't the only partners Trump has alienated since his inauguration: Tuesday, Trump's top trade adviser Peter Navarro slammed Germany in a Financial Times interview for using currency to "exploit" the U.S., and a day later, Trump lobbed similar accusations at Japan, CNNMoney reported. Japanese officials responded by calling Trump "totally incorrect."

The danger in angering trade allies?

America's trade deals are very much two-sided, no matter what Trump says, and we need good relations with nations we rely on to buy our exports: Of every $5 in sales by big U.S. companies, more than $2 is from foreign buyers.

Japan is the U.S.'s fourth largest trading partner by goods exported, according to 2016 Census data. Germany is sixth — and Mexico is second, after Canada.

The general principle that free trade is good for everyone is one reason the U.S. has opened barriers and removed protectionist tariffs for the better part of the last eight decades. Conversely, history has shown that policies narrowly focused on importing less and exporting more tend to be counterproductive; they lead to monopolies, higher costs and less healthy competition, as the Economist has pointed out. 

That's why even some libertarian and "economic" Trump supporters — who like his ideas about lowering taxes and eliminating regulations — have started to be more vocal about the problems with Trump's executive orders.

As the libertarian writer and Fox News contributor John Stossel said: Trump has "broke[n] my heart" by coupling long-held libertarian fantasies, like a federal hiring freeze, with isolationism.

2. Trump's plan for regulatory reform is more theater than sound policy

Dismantling regulation — knocking out two rules for every new one created — is a central part of Trump's plan to help U.S. companies create jobs.

He has already promised to ease automotive and pharmaceutical industry rules and has pledged to help small businesses in particular.

Small businesses provide more than half of U.S. jobs, according to the Small Business Association and, to be fair, excessive regulations can be a problem for fledgling companies.

The average small business owner spends at least $12,000 a year on compliance, according to the SBA; that's a lot considering 19% of owners have less than $100,000 a year in revenue. And because that $12,000 is a barrier of entry for smaller players, deregulation could arguably help spur healthy competition and increase investment.

But the devil is in the details, and critics have called Trump's two-for-one plan "gimmicky" and "random," with a working paper from George Washington University arguing that it would be tremendously hard to enforce. For those reasons and more, one Harvard attorney who reviewed the order told Vox it was "not implementable."

Other critics say it could even be dangerous. 

"It seems a little like random mathematics," said Bankrate's Hamrick. "Imagine if the two-for-one burden was applied during the financial crisis, you'd never have been able to push something like the Consumer Financial Protection Bureau through."

Regulations are often created in a response to some sort of crisis, he said, and when you're in a crisis, it's not always going to be smart to withhold your solution until you've found two other regulations to eliminate.

"Trump is using a hammer and an ax to make these changes that would really be better made with a scalpel," Hamrick said.

Furthermore, there is a minimal amount of regulation that is necessary to protect Americans' health and safety — and those are the cases where Trump's two-for-one deal will seriously crash with reality. 

Take drug-makers, to whom Trump has promised fewer regulations and lower barriers to entry. While looser rules on generic drugs, for example, could help lower costs by giving patients more options, it's easy to see how deregulating the market — particularly for experimental treatments — could go too far. 

The obvious nightmare scenario is that unsafe or ineffective drugs could get approval, which is not actually good for business, as one biotech industry observer tweeted

It's still too soon to say how all this could play out for sure, says Michael Johannes, a professor of finance at Columbia Business School. 

"In the second half of this year, things will start to heat up," Johannes said. "There are going to be winners and losers."

3. Trump isn't helping to stop climate change — a growing business imperative

Trump is pulling the U.S. out of the international Paris agreement, which is meant to slow the damage associated with climate change.

That's bad news for business, particularly in the long term.

A landmark study from the National Resource Defense Fund suggests four of the biggest costs associated with accelerating climate change alone — hurricane damage, real estate losses, energy costs and water costs — will suck nearly $2 trillion out of the U.S. GDP each year by 2100.

The costs associated with climate change will likely be myriad: Agriculture could likely take one of the biggest hits, as heatwaves or flooding destroy crops and drive up the cost of the food we eat

Then there's labor productivity to consider. As climate change ups the risk of disease and heat-related illness, the productivity of outdoor workers could ultimately decline by 3%, according to a study from Risky Business, an initiative to examine climate change's costs. 

“Three percent may not sound like much,” Risky Business Executive Director Gordon told the Guardian. “[But] that loss is about the equivalent of losing all of Connecticut’s labor force.”

But there's perhaps no one who is quite so anxious about climate change as the insurance industry: 39% of the global population lives by the coast, according to the National Oceanic and Atmospheric Administration

As rising sea levels increase the likelihood of flooding, Allianz, Europe's largest insurer, estimates that within the decade, its losses in a bad year could top $1 trillion. In the U.S., Allstate has stopped renewing and selling new policies in some Gulf Coast states, according to an industry report

Of course, if businesses are spending more on insurance, real estate, labor and food, some of those costs will ultimately be passed to consumers. 

That's perhaps yet another reason why — despite the post-election market rally, suggesting businesses liked Trump's promises — optimism is flagging.

Finally, one theory questions whether the "Trump rally" was even a rally at all.

As Terry Burnham noted over at PBS, Trump's proposed tax cuts should increase corporate profits by 15% on paper.

So by rising only 10% since the election — instead of 15% — according to Burnham's analysis, the stock market has actually showed investors have been pessimistic on Trump from the start.

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