Being President can be very good (and honest) business
Donald Trump likes to remind us what a great businessman he is (or rather was). He may be right and perhaps his best business decision was to run for US President. It has greatly enhanced the value of his brand. As they like to say in Hollywood, there is no such thing as bad publicity.
Moreover he did not apparently have to spend much of his own wealth on his triumphant publicity campaign. A generally hostile media provided him with all the exposure he needed and did not have to pay much for. They thought, as did Hillary Clinton, that exposing his exceptionalism would be enough to put off potential voters. As we now know, they were wrong. The daily Trump tweets became the news events of the campaign (and, alas, continue to make the news) and were to his advantage at the polling booths. A tweeting President Trump, like much else of what he will now do and say, breaks the mold and we may well just have to get accustomed to his style (or lack of it).
What he does in office, with the help of his cabinet colleagues and many appointments, will matter more than his Tweets or intentions. The promise of a very different and more encouraging approach than that provided by the Obama administration to doing business in the US has resonated strongly with business – especially small business whose confidence levels are at record highs. Confidence in future income prospects is the most important ingredient in the recipe for more spending by households and firms that will raise US growth rates if it materialises.
Separation of US powers, between the House, the Senate, the states and the courts, is designed to complicate and constrain the realisation of any Presidential agenda or campaign promise. Tax reforms, of which much is expected, are initiated in Congress where much work has been done over the years by the Republican leaders in the House. We, as well as Trump, await with some anxiety the essential details. The implementation of a border tax, or rather a system where costs of imports may be disallowed as a deduction from taxable income, will deserve particular notice. The implications are vast – and not just in the US – and may well threaten the system of corporate taxing practiced everywhere else.
Taxing imports
This border or import tax will be intended to compensate the IRS for a lower corporate tax rate – given the excess of US imports over exports. The lower the corporate tax rate however, the less will any expenditure deduction matter for after-tax incomes. This includes the deduction for interest incurred or capital expenditure, both of which will be subject to debate and possible reform. It will be deemed protectionist by the World Trade Organisation and the US will argue otherwise but irrespectively. Net-net it may mean higher prices in the US but only if net-net taxes have risen for business enterprises in general. That will not be the intention though different businesses will be affected differently in ways that will be worth anticipating. It is effective after tax profits that influence the required returns on capital that have to be recovered in the prices that consumers or customers must pay if the firm is to succeed. Even income taxes find their way into prices.
Managing conflict
President Trump is not bound by the conflict of interest regulations that apply to all others responsible for government business. Trump however has elected to recuse himself fully from the Trump enterprise while President. His sons will run the business and manage the Trump brand. The cry from the anti-Trump brigade is that such arrangements, even should Trump stay fully uninvolved in the decisions made by Trump Enterprises, still represent a conflict of interest. In other words, the Trumps should abandon the Trump business and eliminate the brand, including presumably removing the Trump insignia that currently adorns buildings and merchandise – not a practical possibility. Selling the brand would not have eliminated the connection with the Presidency.
The Trump brand therefore lives on and understandably so given its value, calculated as the present value of the difference a Trump branding can make to rentals or prices that a Trump enterprise or franchisee can realise and pay royalties on. But this does not mean any conflict of interest. The better Trump does in discharging his responsibilities as President, the better his contributions will be appreciated by the public at large and the more valuable his brand will become. The economic interests in his brand and that of the US are well aligned, just as they were well aligned with the Obama brand. The lecture and consulting fees he will now be able to charge depend on the regard in which he is held.