Philippa Kaur

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OF THE MANY differences between Donald Trump and Joe Biden, perhaps the easiest to quantify has to do with tax policy. Mr Biden has long pledged to raise taxes on both the wealthy and companies. Mr Trump’s main legislative achievement from his presidency was a tax-cut package in 2017. Unsurprisingly, many corporate bosses prefer Mr Trump on taxes. The big economic question is whether they are being short-sighted and overlooking America’s fiscal health, which they also profess to care about.When Mr Trump was elected in 2016, net federal debt was about 75% of GDP. When he left office in 2021, it was 97% of GDP. The Congressional Budget Office (CBO) forecasts that it is on track to hit an eye-watering 181% three decades from now. At that level the government’s annual interest payments are expected to exceed its combined spending on national defence, education and highways. That raises the risk of a financial crisis—hardly an ideal environment for business.image: The EconomistCritics of Mr Trump point to the debt trajectory on his watch as evidence of fiscal mismanagement and warn he would make things worse if elected for a second term. Many of his tax cuts are set to expire at the end of 2025 (the individual-income-tax rate for the highest earners will revert to 39.6% from 37%, for instance). If Mr Trump returns to office, he will try to make the cuts permanent. The CBO estimates that this would add $350bn or so to the deficit annually over the next decade, equivalent to 1% of GDP (see chart).Yet this line of criticism misses two important points. First, the accumulation of debt under Mr Trump largely stemmed from the stimulus launched soon after covid-19 struck, which countered some of the economic drag from the pandemic. The comparison is unflattering for Mr Biden: he expanded the stimulus in 2021 when there was less need for extra fiscal support from the government, and this additional spending helped stoke inflation.Second, it is not enough to look at taxes alone. The interaction between taxation and growth lies at the heart of debt sustainability. “The overriding driver of our fiscal problems is that we don’t have enough growth,” says Stephen Moore, who helped design Mr Trump’s tax cuts in 2017. “We want to bring jobs and capital here, and yes, we can grow out of this.” Many economists dismiss such talk as hyperbole. After all, in the 2016 election, Mr Trump vowed that deregulation and tax cuts would unleash a torrent of economic growth; in reality America’s growth rate ticked up just slightly in the two years after his tax law went into effect, before covid erupted. But this extra activity did help to boost America’s fiscal revenues, offsetting some of the cost of the tax cuts. “Thinking you should tax away to a lower deficit is misleading,” says Tomas Philipson, an economic adviser in Mr Trump’s administration.Mr Biden’s approach offers a counterpoint. He has called for a range of tax increases, including raising the corporate rate from 21% to 28%. “That may be counterproductive,” says Erica York of the Tax Foundation, a think-tank. Ms York and her colleagues estimate that Mr Biden’s tax proposals would lower America’s debt-to-GDP ratio but also shrink the economy by 1.3%, whereas Mr Trump’s tax cuts would, if permanent, push up debts but expand long-run GDP by 1.2%. It is not a simple trade-off either way.A true clean-up of America’s finances would require reforms to big social programmes, especially income support for pensioners and state-provided medical insurance, which together account for nearly half of federal spending. Here, Mr Trump and Mr Biden look indistinguishable. Both are silent on serious changes to these programmes, because both are well aware how deeply unpopular any cuts would be. ■To stay on top of the biggest stories in business and technology, sign up to the Bottom Line, our weekly subscriber-only newsletter. More

“GO WOKE, GO broke,” intone Republicans fed up with socially aware American firms. But it is the politicians who are paying for their own ideological zeal. In 2000 and 2004 corporate political-action committees (PACs) gave them twice as much as they gave Democrats. After divvying up donations nearly evenly between the two parties in 2008 (perhaps thanks to a charismatic newcomer named Barack Obama), in 2012 and 2016 they favoured Republican candidates again, by a factor of nearly two to one. Company bosses, too, preferred conservatives. A paper in 2019 found that between 2000 and 2017 CEOs of firms in the S&P 1500 index directed two-thirds of their giving to the right.In the 2019-20 election cycle, by contrast, corporate PAC donations to Republicans fell by a quarter, compared with four years earlier. One explanation is that donors were unhappy with the party’s populist shift away from trade, immigration and international co-operation. After Mr Trump’s supporters stormed the Capitol on January 6th 2021, dozens of firms halted donations to Republican lawmakers who voted against certifying Joe Biden’s 2020 election win. According to Jeffrey Sonnenfeld of the Yale School of Management, more than three-quarters of these firms were still withholding such donations a year later.image: The EconomistPreliminary figures suggest this will be another disappointing year for Republican fundraisers. Data from the Federal Election Commission show that in the first 11 months of this presidential cycle Republicans got a third less from corporate PACs than in 2020 and half as much as in 2016 (see chart). Comcast, a cable operator, and Northrop Grumman, an armsmaker, have cut their cheques by a third since 2020. ExxonMobil, an oil giant, has halved donations. Top-spending trade groups, such as the National Beer Wholesalers Association and the National Association of Realtors, gave Republicans less than four years ago.The unspent money may not go to Democrats. According to End Citizens United, an advocacy group, 73 mostly Democratic congressmen have sworn off corporate PACs entirely, up from 56 five years ago. America Inc is always looking for friends in Washington. In the post-Trump era, it is finding itself alone. ■To stay on top of the biggest stories in business and technology, sign up to the Bottom Line, our weekly subscriber-only newsletter. More

One reason the world’s corporate elite jet off to Davos each year is to check in on important relationships, be it with critical suppliers or big-spending customers. This year many are wondering about their relationships with Microsoft and OpenAI, the startup behind ChatGPT. The companies are the world’s most prominent purveyors of artificial intelligence (AI), which has the business world giddy. OpenAI exclusively licenses its technology to Microsoft. The software giant is busy injecting it into products from Word to Windows.The relationship between the two companies is also under scrutiny. In November Sam Altman, OpenAI’s boss, was fired by his board, only to be reinstated days later. Satya Nadella, Microsoft’s chief, whose company reportedly owns 49% of the startup, supported Mr Altman during the ordeal. The kerfuffle still left many wondering about risks to what Mr Altman has called the “best bromance in tech”. When the pair sat down with The Economist in Davos on January 17th in their first joint public appearance since November, they were upbeat and, for the most part, singing from the same hymn sheet. Their partnership is “great” and “unbelievable”. They often remarked on how much they agree.image: The EconomistOne concurrence was that 2024 will be a big year for AI. Microsoft’s huge bet on the technology this month helped it to dethrone Apple as the world’s biggest firm (see chart). Today it is closing in on a value of $3trn. Its forthcoming quarterly earnings will give the first clear indication of how much corporate customers are willing to spend on AI. Although some observers have been underwhelmed by the progress made by OpenAI’s latest model, GPT-4, Mr Altman hints at new capabilities, such as greater ability to understand and produce audio. Mr Nadella says models will get better at all tasks, from writing essays to churning out computer code. “I really think the magic of this is the generality,” says Mr Altman.[embedded content]The general-purpose nature of AI is one reason why Mr Altman thinks of the technology as “a new computer”. Mr Nadella sees it in similar terms. He argues that “since the PC, we have not had sort of the real driver of getting more things done with less drudgery.” Microsoft’s supply-chain team already use AI to help model the impact of their decisions, without having to wait for the finance department to do this at the end of the quarter.AI’s ability to replace skilled workers, such as accountants, raises concerns about its impact on jobs. An IMF paper published on January 14th calculates that the technology could reshape labour markets. Those with college educations are both most exposed to disruption but also best positioned to reap the rewards of a new wave of innovation. Both Messrs Nadella and Altman are convinced that the technology will create more new jobs than it destroys. Mr Nadella thinks it may make the labour market more dynamic, by allowing people to learn new skills and switch jobs faster. That, he says, will cause some wages to go up and others to be “commoditised” (in other words, decline).That disruption is likely to be all the more dramatic with the advent of artificial general intelligence (agi), which, if it is achieved, would be able to outperform humans on most intellectual tasks. AI doomers think this could generate all manner of ills, from economic chaos to a robot apocalypse. Nonetheless, producing AGI is the stated goal of OpenAI. Mr Altman describes progress towards this aim as “surprisingly continuous”. He likens it to the evolution of the iPhone, where no single new model represented a big leap but the technological advance from the first version to the latest one has been extraordinary. For that reason he expects the ado caused by the first AGI to be short-lived. “The world will have a two-week freakout and then people will go on with their lives,” he says.Neither Mr Nadella nor Mr Altman will say when AGI might come around. Mr Nadella believes that by the time it does, its use will be regulated: “Nation states are absolutely going to have a say on…what is ready for deployment or not.” Mr Altman broadly agrees, but is a bit more circumspect. Regulators, he notes, will have to weigh the risks and capabilities of AI—as with aeroplanes, which create enormous benefits despite occasionally crashing. Likewise, AI’s “tremendous upside” means that halting progress would be a mistake. Safety is not a binary question of using or not using a technology; it is “the many little decisions along the way”. He points to the launch of GPT-4, which was pushed back by seven or eight months.Mr Altman, ever the techno-optimist, insists that “technological prosperity is the most important ingredient to a much better future”. Mr Nadella, a corporate veteran, strikes a more businesslike note. He talks about the 20 meetings he had earlier in the day with executives from a range of industries, talking to them “about something that they are doing where I can have some input”. He is, in other words, firming up Microsoft’s relationships—as befits a big boss in Davos. ■ More

When Donald Trump left office three years ago, still huffing, puffing and plotting to overturn the results of the 2020 presidential election, the leaders of most of America’s biggest corporations were only too happy to see the back of him. They wore their moral outrage like a badge of honour. Sure, they had conveniently put aside their earlier scruples about Mr Trump’s suitability for the White House, bought off by generous corporate and personal tax cuts in 2017. Sure, many had cravenly turned a blind eye to his torching of environmental rules in support of a broad-brush regulatory bonfire. But his attempts to subvert American democracy, and the storming of the Capitol by his supporters on January 6th 2021, were a step too far.With unusual unity, they huffed and puffed back. Manufacturers called the riots a “disgusting episode”. The Business Roundtable, a lobby group for big companies, called on Mr Trump to “put an end to the chaos”. Some prominent firms pledged not to provide financial support to the 147 Republican lawmakers who had refused to certify Mr Trump’s defeat.Mr Trump’s runaway victory in the first bout of the Republican primary contest in Iowa on January 15th cemented his status as the party’s presumptive nominee. The polls suggest that in a head-to-head battle with President Joe Biden, he would win. But if there are murmurings of alarm about what a sequel to his chaotic presidency might mean for corporate America, this time they remain behind closed doors. Recently Larry Summers, the pro-Biden former treasury secretary, urged CEOs to reject Mr Trump, noting that Italy’s markets did well in Benito Mussolini’s first few years in power—until they didn’t. Yet for the moment, most advisers and leaders of business associations counsel bosses to keep their heads down. Forget Il Duce. The message is: duck and cover.There is rationale for lying low. For a start, with ten months to go before the elections, anything can happen. Health issues could force either candidate out of the race (combined, Messrs Biden and Trump have had 158 years on Earth, nearly two-thirds the age of America itself). Mr Trump has not only his Republican rivals and Mr Biden to contend with, but 91 felony counts across two state courts and two federal districts. Staking out the moral high ground from corner offices may also be counter-productive. It could backfire on those who attack Mr Trump in public, and bolster his anti-elite appeal. In office, he was quick to retaliate when attacked (preferred weapon, CAPITALISED TWEETS!). With trust in big companies on the wane in recent decades, it has become easier for populists to whip up an anti-business hue and cry. The head of a prominent business organisation ruefully admits that if he took a public stand against Mr Trump’s campaign proposals, “the former president would be delighted.”In the past few years, as the relationship between big business and Mr Trump’s MAGA Republicans has soured, executives have learned the hard way the risks of sticking their necks out. A public-relations adviser to CEOs thought a year ago that it would be relatively easy for business to disown Mr Trump because of his legal travails. But then came the unofficial boycott of Bud Light, a beer, by right-wing culture warriors offended by its marketing campaign with a transgender influencer. The PR man realised the power of the mob to hurt the bottom line. “We are back to walking on eggshells,” he says—caught between progressive employees and customers demanding that firms take a stand against Mr Trump, and fear of the MAGA masses.Then there is Mr Biden. When pushed to express a preference, many businesspeople say they see him as a steadier pair of hands in policymaking and geopolitics. But they are fed up with his administration’s anti-business rhetoric (Gina Raimondo, the commerce secretary, is an honourable exception). That makes them more tolerant of Mr Trump. Of the two, Mr Biden is “hands down a bigger threat to prosperity”, says a billionaire financier.Even Mr Biden’s backers rail against the ”big is bad” stance of his trustbusters. Those trustbusters’ bite has not been as bad as their bark; many of their cases have failed in court. But the bark alone has chilled dealmaking, laments an investment banker. As for the risk that Mr Trump could “weaponise” administrative agencies against his corporate enemies, Neil Bradley of the US Chamber of Commerce counters that Mr Biden, too, has urged his administration to crack down on “junk fees” and price-gouging in industries ranging from airlines to banking and health care. Mr Bradley draws few distinctions between either party’s economic populism.Some businessfolk angrily dismiss efforts to draw parallels between the dangers of Mr Trump and Mr Biden. Calling it “whataboutism”, they quietly profess to be terrified by the prospects of a second Trump administration. In the first one, the former president may have pushed radical policies, but sensible conservatives in his administration, as well as his own predilection for chaos, got the better of him. Now he is surrounded by true believers, such as the Heritage Foundation, a pro-MAGA think-tank whose job, says one business leader, is “to prevent the amelioration of the Trump agenda”.In other words, Mr Trump has people in place to advance a plan that could shake up the economic framework on which American business has prospered for generations. The pillars of that plan of most immediate concern to corporate America are trade, migration, the fiscal deficit and clean energy.The levy brakesA trade war is the most palpable worry. The self-described “Tariff Man” has floated the idea of imposing a baseline 10% levy on all imports. These would be raised, “an eye for an eye”, in retaliation against any country with a higher tariff. China is the main target. Businesspeople fear his goal is unilaterally to terminate trade with China, which would be a nightmare for any firm exposed to the country. Such a trade policy would be far more draconian than that of the Biden administration, which has kept Mr Trump’s tariffs but worked with allies such as Japan and the Netherlands to restrict export of strategic goods such as advanced semiconductors, without cutting China off altogether.Some hope that Mr Trump is posturing. They take solace in the fact that Congress, not the White House, regulates commerce and that courts adjudicate trade law. Yet Kent Lassman, who contributed a bold essay in support of free trade to the Heritage Foundation’s pro-Trump “Project 2025” road map, thinks the former president means it, even if it disrupts America’s existing trade treaties. Mr Trump “is not changing his stripes”; his sense that everything is a deal and that America is victimised is stronger than ever. His chief advisers on trade, protectionist hawks such as Robert Lighthizer and Peter Navarro, “know how to play off of those beliefs”, Mr Lassman says.Mr Trump’s threat to round up and deport millions of undocumented migrants has also alarmed businesses—not only for humane reasons but because of a chronic worker shortage. In November America had 8.8m job openings. The number of unemployed is 6.3m, notwithstanding a recent surge in migrants crossing over the southern border. Mr Trump’s harshest proposals would be hard to implement. He made a similar mass-deportation promise on the campaign trail in 2016 but was frustrated by court challenges and other pushback. Still, any pickup in expulsions could hurt industries such as farming, leisure, retail and hospitality that rely on low-cost labour, executives say. However important it is to maintain strong borders, whipping up anti-immigrant fervour for political ends also jeopardises legal migration. That hurts businesses’ ability to recruit skilled and unskilled workers alike.Government debt also looms large in CEOs’ minds. They praised Mr Trump’s Tax Cuts and Jobs Act, which reduced corporate tax rates from 35% to 21%. But they fear that neither Mr Trump nor Mr Biden has credible plans to stop the deficit from swelling. If Mr Trump pursues his most unorthodox economic ideas, there are fears that a loss of confidence could jolt the Treasury market, pushing up borrowing costs and sending the dollar into a tailspin.Some think that is going too far. “The world has insatiable demand for US Treasuries,” notes a pro-Biden Wall Street grandee. But a few corporate advisers raise the possibility that an unrestrained Mr Trump could trigger an American version of Britain’s bond-market sell-off in 2022, when investors lost faith in the economic stewardship of Liz Truss, a prime minister who was outlived by a lettuce. “I have parliament envy,” the leader of a lobby group chuckles. Unlike American leaders, he observes wryly, fiscally irresponsible British ones can be quickly forced out of office.America’s environmental trajectory under Mr Trump is another concern. The former president would, like the current one, be expected to double down on industrial policy. But unlike Mr Biden, whose signature effort has been the green-friendly Inflation Reduction Act (IRA), Mr Trump remains a climate sceptic who is likely to try to gut clean-energy programmes. In this case, he may face pushback from his own party. Many of the clean-energy projects predicated on funding from the IRA are in Republican-leaning states. Business, too, is likely to oppose a reversal of Mr Biden’s green agenda. Mr Bradley says that though industrial policy writ large remains “incredibly problematic”, government programmes that induce changes of behaviour are justified when technology is at an early stage, as with clean energy.If Mr Trump’s policy proposals directly related to business do not inspire confidence, his efforts to undermine faith in the judiciary, rule of law, NATO and other alliances, including with Ukraine, raise big questions about America’s role in the world. Some executives shrug this off. A few weeks ago the head of an international asset manager met a group of American bankers and found them “shockingly sanguine” about the election. They told him that whatever the outcome, the system would hold; that stockmarkets had done well under both presidents; and that the American economy was in such rude health that it could survive even electoral shenanigans. “Maybe their point is that business has transcended politics in America,” he says. He adds pensively: “Maybe they are right.”Or maybe they aren’t. Michael Strain of the American Enterprise Institute, a pro-business think-tank, says that Mr Trump’s populism makes political violence in America more likely this year. That would hurt business. The head of a global risk-advisory firm says uncertainty over Mr Trump’s geopolitical agenda will haunt multinationals, making it hard for them to decide, for example, whether or not to allocate resources to China or perhaps even Russia. Any sense that he is weakening the rule of law and the sanctity of contracts and treaties would ripple around the world. “Things like the rule of law are gossamer concepts that disappear just like that,” says a New York financier.His colleague, an expert on geopolitics, says that American businessmen rarely step back to consider how much the country’s global influence, including the hegemony of the dollar and the defence of maritime shipping routes, underpins their companies’ prosperity. Ron Temple, chief market strategist at Lazard, an investment bank, says the gap between right and left has widened in America, amplifying policy variability and becoming too important a factor for business to overlook. “There is almost a sense of complacency, married with entitlement, combined with presumptuousness,” he concludes. If anyone is likely to shake corporate America out of such numbness, it is Mr Trump. ■ More

ON JANUARY 13TH William Lai Ching-te was elected as Taiwan’s president. He thus secured a third term for his pro-independence Democratic Progressive Party (dpp). The vote will shape relations between self-governing Taiwan and China, which wants the island to be governed from Beijing. It will also affect the commercial relations between the two—and, because Taiwanese manufacturers sit at the heart of critical global supply chains, between them and the rest of the world.For Taiwan’s big businesses, the cross-strait tensions are unwelcome. Taiwanese entrepreneurs have been building factories on the mainland since the 1980s. These used to make textiles and other cheap goods. Today many make sophisticated electronics, including chips. Chinese data suggest that in 2022 Taiwanese firms had assets worth $43bn in the People’s Republic; by comparison the figure for companies from America, an economy 35 times the size of Taiwan’s, was $86bn. The real sum is almost certainly higher, as Taiwanese companies often channel investments via Hong Kong and other jurisdictions to avoid the scrutiny of their China-wary government.The Chinese Communist Party is likely to express its displeasure at the dpp victory by putting a squeeze on Taiwanese business. It has form. The corporate supporters of the first DPP president, Chen Shui-bian, who served from 2000 to 2008, faced regulatory scrutiny and investment restrictions from China, according to Taiwan’s Mainland Affairs Council, an agency dealing with cross-straits relations. In 2005 Shi Wen-Long, a petrochemical magnate and one of Mr Chen’s biggest backers, was forced into a humiliating public endorsement of China’s anti-secession law, which formalised military threats against the island.Since the dpp returned to power in 2016 under Tsai Ing-wen, Chinese commercial pressure has increased. Far Eastern Group, a Taiwanese conglomerate, was hit by a fine in 2021, which Chinese publications tied to the political views of its chairman, Douglas Hsu. Shortly afterwards Mr Hsu issued a statement rejecting Taiwanese independence. Even businessmen friendlier to China have not been spared. In October Chinese state media reported a tax investigation into Foxconn, a giant Taiwanese contract manufacturer with vast operations in China. Taiwan’s National Security Council claims that the tax probe was a targeted effort by China to prevent Foxconn’s founder, Terry Gou, from dividing the pro-unification camp by running for president. In January China slapped tariffs on a range of Taiwanese chemical exports, a move widely viewed as another warning shot ahead of the election.In the past such bullying led firms either to back the independence-wary Kuomintang (KMT), which favours closer economic links with the mainland, or to stay out of politics altogether (the approach of TSMC, the world’s biggest chipmaker and Taiwan’s most valuable firm). This time corporate grandees, even those with exposure to the mainland, appear less cowed. Some have gone so far as to affiliate themselves with the dpp. Early last year Tung Tzu-hsien, who chairs Pegatron, a big contract manufacturer, became vice-chairman of the New Frontier Foundation, a dpp-associated think-tank. In the run-up to the election Frank Huang, chairman of Powerchip Semiconductor Manufacturing Corporation, endorsed Mr Lai openly.Taiwanese businesses’ increased resistance to China’s strongarm tactics has several causes. American tariffs on Chinese-made goods have made export manufacturing on the mainland less attractive, notes Chun Yi-Lee of Nottingham University. Harsh policies such “zero-covid” pandemic lockdowns and arbitrary crackdowns on sectors such as consumer technology have further dented China’s appeal. The recent weakness of China’s economy is now compounding the sense that Taiwan’s economic future may not be so closely bound up with the mainland.image: The EconomistA shift is already visible in Taiwan’s trade and investment trends. The share of the island’s exports going to the mainland has dropped to 23% over the 12 months to November, down from an all-time high of 30% in 2021 and the lowest in almost two decades (see chart). In 2010, over 80% of Taiwan’s annual outbound investment flows went to mainland China. In 2023 just 11% did. Companies like Pegatron and Foxconn are investing in places like India and Vietnam, which offer both cheaper labour and a chance to avoid the American tariffs. According to one recent poll, more Taiwanese business owners care about Taiwan’s admission to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, a trade deal between 12 countries including Australia and Japan, than the Economic Co-operation Framework Agreement, which a KMT government signed with China in 2010.China’s ability to inflict pain on Taiwanese business is diminishing for another reason. More than 60% of the island’s exports to the mainland and Hong Kong are electrical machinery and equipment, including computer chips. Cutting off such products could damage Chinese buyers more than it does Taiwanese sellers. ■ More