The central plank of Donald Trump’s “America First” platform is dealing with unfair trade balances with countries like Mexico and China. Especially China. But Trump’s plans will backfire, and will actually help China and hurt America.
It’s apparent that Trump knows very little to nothing about how job growth occurs. It doesn’t happen because GM or Boeing hire up for a new plant or assembly line. Of course, those core businesses, and the economies they support, have enormous local effects and touch thousands of lives. But the economy thrives on small business.
Trump hates small business
Trump knows less than zippety zap about small business, except that they exist to be taken advantage of by larger businesses–like his. Back in July, the Daily Beast went through Trump’s legal files and determined he’s “sued everyone but his hairdresser.” (Note: Trump does his own hair.)
Reuters focused on Trump’s advice in his bestseller “The Art of the Deal” to dispute your bills. Of course, it makes sense to dispute your bill when it’s wrong, or when you’re being overbilled. But when you’re the developer of a billion dollar contract hiring small businesses, you’re expected to pay what you agreed to pay. Trump has none of this.
Reuters reviewed seven examples of big struggles – many carried out in court during which Trump’s opponents faced teams of powerful lawyers – over payments between Trump and small businesses, six of which ended favorably for Trump. Of the seven, two people who shared their stories did not want their names to be used. Two others did not agree to share any information beyond what was in the public record.
Trump made a practice of paying only half of amounts billed by small contractors, withholding the other half to get either more than was originally promised, or by coming up with various “deficiencies” (which were never disclosed at delivery). This way, he pays less, and the small businesses get less. Trump can afford to take some hits, as a large company. Many of the small businesses, when Trump is their biggest customer, can’t afford the hit and go under.
If you sue Trump, he simply pays the lawyers to suck all the money out of you in court until you’re done.
Only one lawyer Reuters interviewed, Fort Lauderdale attorney William Scherer, claimed a victory over Trump. He won a suit in Palm Beach County small-claims court in 1994 to recover $5,000 Trump owed him for some work Scherer’s firm had done for the real estate mogul in Florida. Scherer said he had already offered Trump a reduced rate “to curry favor with him,” which was why he pursued such a small sum when Trump declined to pay.
Trump hits so hard that nobody wants to risk reopening old cases, especially when the settlements contain consent orders with draconian penalties if the details are discussed.
In this way, Trump destroys small businesses. He always has.
The Small Business Administration defines “small business” as companies with less than 500 employees. They employ over half of the workforce and contribute nearly two-thirds of job growth, according to a 2013 Washington Post article (and generally agreed upon by most economists).
Even if the number of employees is dialed back to 50, nearly a third of businesses are that small. So most job growth is related to the number of new business starts from zero to 50 employees, plus the number of growing businesses under 500 employees (together they represent 99.7 percent of all companies).
But Trump only cares about the 0.3 percent of large businesses like Disney, Ford or Carrier who outsource H1B’s or ship their jobs to Mexico.
China and how Trump’s strategy will backfire
China’s communist government realized decades ago that it could never break out of abject poverty unless capitalist principles were injected into its economy. In 1979, Deg Xioaping designated Shenzen a Special Economic Zone (read: capitalist zone). It’s made thousands of millionaires and not a few billionaires.
Startups flourish because of the lack of regulation, low corporate tax rate (25 percent), lack of a capital gains tax or tax on earned interest from bank accounts. Those startups provide hundreds of thousands of jobs, many of them producing goods for large corporate customers like Apple (FoxConn). Trump hates Apple, he said because they refused a (now moot) government order to hack its own phone software.
But the reality is that if China isn’t legitimately producing goods for the American market through real American startups, it’s producing illegitimate knock-offs that still find their way into our economy.
A 30 or 40 percent protective tariff will hurt the larger companies less than it will hurt American small business. Apple will either pass the tariffs along to consumers, or move some its goods to other countries (not necessarily the U.S.) like Ireland, where they’ve operated for 30 years. But Silicon Valley startups, or garage-based entrepreneurs on Kickstarter will have nowhere to go for quick manufacturing spin-up.
We’ll lose about half the products in the crowdfunding market because there’s nowhere to get fast, cheap prototypes. And guess what? Those products will show up anyway, because the Chinese are very good at stealing them and getting them here.
The law of unintended consequences (something Trump has never, ever learned or studied) guarantees that hundreds of little companies will crop up who specialize in getting around Trumpian tariffs–and American intellectual property laws. The next Apple, or Google, or Uber, will never exist under a Trump administration, because he could care less about anyone who doesn’t have a silver spoon.
China, however, will do just fine. At the negotiating table, if they even deign to sit down with Trump, they’ll laugh at him. “Go ahead,” they’ll say.
Meanwhile, the hidebound corporations Trump arm-twists into staying in America will cut back on investment, hire less people, and find ways to quietly shift resources. Or they’ll just lobby the living hell out of Congress and Trump’s satraps and get their way–because Trump is about winning, and they’ll make him look like a winner.
If the big-government, big-business-loving Trump makes it to the White House, America will pay for it for a whole generation, while China grows at 4-5 percent. Trump will Make China Great Again.
P.S. Of course, Hillary Clinton will hurt small business growth too. Her nanny state will make things very hard for the over-50-employee companies, but in general the tiny companies will not fare any worse than they have under Obama.
I’m not making the case for a Clinton presidency. But it does seem to emerge that small business won’t prosper under either candidate.