The Trump Effect: Business, Anticipating Less Regulation, Loosens Purse Strings
WASHINGTON — A wave of optimism has swept over American business leaders, and it is beginning to translate into the sort of investment in new plants, equipment and factory upgrades that bolsters economic growth, spurs job creation — and may finally raise wages significantly.
While business leaders are eager for the tax cuts that take effect this year, the newfound confidence was initially inspired by the Trump administration’s regulatory pullback, not so much because deregulation is saving companies money but because the administration has instilled a faith in business executives that new regulations are not coming.
“It’s an overall sense that you’re not going to face any new regulatory fights,” said Granger MacDonald, a home builder in Kerrville, Tex. “We’re not spending more, which is the main thing. We’re not seeing any savings, but we’re not seeing any increases.”
The applause from top executives has been largely reserved for the administration’s economic policy agenda. Many chief executives have been publicly critical of President Trump’s approach to social and cultural issues, including his response to a white nationalist march over the summer in Charlottesville, Va., that turned deadly and his decision to withdraw from the Paris climate accord. Two of the business advisory councils that Mr. Trump assembled in the nascent days of his presidency disbanded after executives grew concerned about his public remarks on the violence in Charlottesville.
There is little historical evidence tying regulation levels to growth. Regulatory proponents say, in fact, that those rules can have positive economic effects in the long run, saving companies from violations that could cost them both financially and reputationally. Cost-benefit analyses generally do not look just at the impact of a regulation on a particular business’s bottom line in the coming months, but at the broader impact on consumers, the environment, public health and other factors that can show up over years or decades.
But in the administration and across the business community, there is a perception that years of increased environmental, financial and other regulatory oversight by the Obama administration dampened investment and job creation — and that Mr. Trump’s more hands-off approach has unleashed the “animal spirits” of companies that had hoarded cash after the recession of 2008.
Some businesses will essentially be able to get away with shortcuts that they could not have under a continuation of Obama-era policies. The coal industry, for instance, will not have to worry about a regulation, overturned by Congress and Mr. Trump, that would have protected streams from mining runoff.
Brett Hartl, the government affairs director at the Center for Biological Diversity, said the Trump administration might avoid big-splash regulatory rollbacks this year and instead would make it harder for federal agencies to block business expansion.
“It’s not going to be sexy things like ‘We’re killing the Clean Power Plan,’” Mr. Hartl said, referring to the Obama-era rule aimed at curbing greenhouse gas emissions from coal-fired power plants. “But you can make it systematically harder for an agency to do the right thing.”
Only a handful of the federal government’s reams of rules have actually been killed or slated for elimination since Mr. Trump took office. But the president has declared that rolling back regulations will be a defining theme of his presidency. On his 11th day in office, Mr. Trump signed an executive order “on reducing regulation and controlling regulatory costs,” including the stipulation that any new regulation must be offset by two regulations rolled back.
That intention and its rhetorical and regulatory follow-ons have executives at large and small companies celebrating. And with tax cuts coming and a generally improving economic outlook, both domestically and internationally, economists are revising growth forecasts upward for last year and this year.
Even before it became clear that Republicans would pass a major tax cut, capital spending had risen significantly, climbing at an annualized rate of 6.2 percent during the first three quarters of last year. Surveys of planned spending also show increases.
Mr. Trump bragged in a news conference last month that he has rolled back 22 regulations for every new one — 67 deregulatory actions, versus three new regulations. Often in conjunction with the Republican Congress, his administration has canceled several rules approved at the end of the President Barack Obama’s term, including a regulation on limiting mining debris in streams, a requirement that broadband providers obtain permission from customers to collect and use online information, and a ban on plastic bottles in national parks.
Administration officials said last month that, since January 2017, federal agencies have delayed, withdrawn or made inactive nearly 1,600 planned regulatory actions. Further rollbacks will affect financial services as well as energy and labor rules, among others.
And Mr. Trump has appointed outspoken critics of regulation to lead several federal agencies, including the Environmental Protection Agency and the Consumer Financial Protection Bureau.
The evidence is weak that regulation actually reduces economic activity or that deregulation stimulates it. But business executives are largely convinced that the cost of complying with rules diverts money that could be invested elsewhere. And economists see a plausible connection between Mr. Trump’s determination to prune the federal rule book and the willingness of businesses to crank open their vaults. Measures of business confidence have climbed to record heights during Mr. Trump’s first year.
“The notion that deregulation unleashes growth is virtually impossible to find in the data,” said Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities who served as the chief economic adviser to Vice President Joseph R. Biden Jr. “What does matter is this idea that confidence matters. If their expectations about the future are positive, then it does make a difference.”
Businesses acknowledge that the most important reason for their increased optimism is the simple fact that the domestic economy continues to expand, with few clouds on the horizon.
Better yet, the world’s major economies all are growing for the first time since the financial crisis. Confidence among European manufacturers hit a high in more than a decade, according to European Commission data that goes back to 1985, even without tax cuts or less regulation.
In Japan, now in the middle of its longest period of growth since the early 1990s, the central bank said corporate investment was exceeding its expectations, and it raised its forecast.
“The fundamental backdrop here is that this is a global synchronized expansion lifting everyone’s spirits, from Tokyo to New York,” said Mark Zandi, chief economist at Moody’s Analytics in West Chester, Pa. “The entire global economy is on one page for the first time in over a decade. We’re all moving in sync and that has everyone feeling good, not just here but across the globe.”
The low unemployment in the United States may also be prompting increased spending, just as it did in the 1990s, as corporations invest in technology to make workers more productive, or replace them entirely. Wendy’s is adding self-service kiosks at 1,000 restaurants.
But business executives say the Trump administration deserves credit. Mr. MacDonald said home builders have benefited from the killing of regulations written by the Obama administration, including a rule that broadened the definition of wetlands, which could have restricted home building in certain areas. The National Labor Relations Board also reversed a decision that made builders more responsible for the working conditions of their contractors’ employees.
In some industries, the administration’s actions will allow companies to engage in activities they might not have been able to otherwise; electric utilities, for example, might be able to invest in upgrading power plants that run on fossil fuels, thanks to a promised rollback of Mr. Obama’s Clean Power Plan to fight climate change.
The Business Roundtable, a corporate lobbying group in Washington, reported last month that “regulatory costs” were no longer the top concern of American executives, for the first time in six years. Mr. Zandi said that regulation was still the top concern in Moody’s survey of business confidence, but that it was rapidly losing ground to concerns about the availability of labor.
The National Association of Manufacturers’ fourth-quarter member survey found that fewer than half of manufacturers cited an “unfavorable business climate” — including regulations and taxes — as a challenge to their business, down from nearly three-quarters a year ago.
Some industries have seen particularly clear changes in fortune. The Trump administration has reversed a number of environmental protections that would have imposed significant costs on energy companies. Mr. Trump’s appointees to the Federal Communications Commission voted last month to repeal so-called net neutrality rules, which treated internet services as a regulated industry, like power lines, and prohibited broadband providers from charging for faster internet service or from blocking or slowing some websites.
That decision helped prompt Comcast to announce that it would invest more than $50 billion in infrastructure over the next five years.
The banking industry, in particular, has been buoyed by a relaxed approach to financial regulation as the Trump administration moves to ease many of the postcrisis rules put in place to prevent another financial meltdown. The Treasury Department has issued a series of reports calling for sweeping changes to rules required under the 2010 Dodd-Frank law, and a council set up to designate firms that pose risks to the financial system is in the process of removing those companies from heightened federal oversight.
Mr. Trump has also installed individuals who have publicly questioned the need for many of the postcrisis rules in major policy roles, including at the Federal Reserve and the Consumer Financial Protection Bureau. Bank stocks have been on a winning streak and ended 2017 up more than 15 percent, according to the KBW Nasdaq Bank Index.
“There has been some regulatory fixes for a lot of industries, and they would tell you that matters a lot,” said Jamie Dimon, the chairman of JPMorgan Chase, who also leads the Business Roundtable. “It’s just hard to do a direct correlation. It doesn’t mean it isn’t real.”
The confidence is translating to industries that have not, as of yet, seen any obvious benefit or policy changes.
“We have spent the past dozen years or longer operating in environments that have had an increasing regulatory burden,” said Michael S. Burke, the chairman and chief executive of Aecom, a Los Angeles-based multinational consulting firm that specializes in infrastructure projects. “That burden has slowed down economic growth, it’s slowed down investment in infrastructure. And what we’ve seen over the last year is a big deregulatory environment.”
Mr. Burke said he expected the actions to speed future projects for his company, though he declined to offer details, citing competitive risks.
The White House sees its efforts as having their intended effect. Mr. Trump boasted about his deregulatory efforts last month at an event where he stood in front of a small mountain of printouts representing the nation’s regulatory burden and ceremonially cut a large piece of “red tape.”
The chairman of the White House Council of Economic Advisers, Kevin Hassett, said in an interview that the administration’s freeze on new regulations, in particular, appeared to have buoyed confidence. Though he cautioned that it could take years of research to pin down the magnitude of the effects, he said deregulation was “the most plausible story” to explain why economic growth in 2017 had outstripped most forecasts.
“Our view is, the ‘no new regulations’ piece has to be more powerful than we thought,” he said.