With just six weeks remaining before the presidential election, business leaders gathered last month at the Crowne Plaza Hotel in Annapolis, hosted by the Annapolis and Anne Arundel County Chamber of Commerce (AAACCC), to gauge the effect this year’s election cycle could have on the economy, consumer confidence and business investment.
“We have two presidential candidates … that have very low likeability,” said Daraius Irani, chief economist at the Regional Economic Studies Institute at Towson University. “Uncertainty about what the federal government’s going to do drives business decisions that can affect the economy in an adverse way.”
Just as important, he said, is what the government may not be doing.
“Right now, we don’t have a federal budget, and we’ve got eight days left [as of Sept. 22],” Irani said. “We’re going to reach our debt ceiling in November.”
Irani presented a snapshot of current economic conditions, comparing the U.S. economy to a Monet painting that looks good from a distance, but appears turbulent up close.
“The Gross Domestic Product is up, we’ve got positive job growth and unemployment’s down,” he said. “In spite of that, people still feel like we’re in recession even though we’ve been in recovery the last seven years; it is an odd recovery.”
Free Trade Benefits
Businesses face uncertainty with each candidate, Irani said, speculating that the same type of uncertainty created by President Obama would carry over under Hillary Clinton. “With Trump, we’re not certain about his commitment, he’s a little cagey about his policies.”
Both are strong on increasing infrastructure spending, he said, but differ in their stance on immigration reform.
One particularly disturbing similarity in the major party candidates has been their anti-trade rhetoric.
“[Trump] is actually for tearing up existing treaties and imposing large tariffs on our major trading partners,” said Dan Griswold, a Mercatus Center senior research fellow and co-director of the program on the American Economy and Globalization at George Mason University. “Our freedom to trade and do business in a global economy is under greater assault than at any time since the 1930s. This is a critical time for U.S. trade policy.”
He laid out a case for free trade from a Main Street perspective, endorsing it as a positive sum policy for the United States, with tangible results: lower prices, better quality and more variety for imports, and improved access to 80% of the world’s spending power and 95% of the world’s buyers for the nation’s exporters.
A tit-for-tat tariff war with trading partners benefits nobody, Griswold said, and would ultimately harm America’s poor, and its small and medium-sized enterprises.
“Another aspect that gets forgotten is that more than half of what we import to the United States every year is stuff not for consumption, but for production,” he said. “If we put tariffs on steel, we raise the cost of production for a broad swath of U.S. industry; we need to be very careful about that.”
As to the argument that global trade has put some Americans out of work, “it’s undeniable … but the total numbers are actually pretty small when compared to the overall job churn,” Griswold said. “Millions of jobs are eliminated every year mostly by technology and changes in consumer taste, and millions are created by those same dynamic forces.”
A Center for Business and Economic Research study of a 5.6 million decline in U.S. manufacturing jobs between 2000 and 2010 agrees, he said, finding that 85% of those jobs disappeared as a result of technological innovation, automation and productivity gains.
The challenge, Griswold said, is to position the workforce to take advantage of opportunities created by such a dynamic economy. “The right response is to invest more in education, job training and worker mobility.”
With Congress preparing to vote on the Trans-Pacific Partnership (TPP) trade agreement with 11 other countries sometime after the election, Griswold said it behooves small businesses to advocate for passage.
“TPP will eliminate 18,000 individual tariffs on U.S. products around the Pacific Rim and open up markets for farm production, manufacturing goods and a range of services, including data services,” he said. “A separate study by the U.S. International Trade Commission found it would boost United States trade output and employment.”
It stands to deliver enhanced transparency, clarity and access to dispute settlement mechanisms that are currently out of the reach of small and medium-sized enterprises, Griswold said, while protecting access to cloud services and providing additional securities for property rights.
Joining Griswold for a panel discussion of issues and uncertainties currently impacting business were Severn Bancorp Chairman and President Alan Hyatt, Ron George Jewelers Owner Ron George and Greenberg Gibbons Commercial Chairman and CEO Brian Gibbons.
Changes in consumer attitudes and expectations have had a major effect on retail business models, Gibbons said. “We’ve had to create entertainment venues to attract people as opposed to pure shopping,” Gibbons said.
In the banking industry, the pendulum has swung away from larger banks and now favors community banks, Hyatt said.
In terms of the biggest potential change on the horizon, “the medical cannabis business is going to be quite an enterprise and may ultimately become recreational,” he said, prompting Severn to seriously consider its options in response to recently issued Department of Justice guidance.
“Some banks are ill-prepared because of the compliance that’s required, but for those banks that have strong compliance teams, I think there’s a viable option to participate in that business,” Hyatt said.
For companies like Greenberg Gibbons, minimum wage legislation would likely result in lower rents, Gibbons said.
There are other perennial issues that generate anxiety for small and medium-sized business owners, including the regulatory environment, the Maryland General Assembly’s penchant for expanding revenue sources, and issues such as corporate income tax and paid sick leave.
“These issues are definitely going to come up again,” said George, a former Maryland Delegate.
Moving on to post-election expectations, panel participants leaned toward an outcome in which Clinton prevailed and basically more of the same.
“I think we’re in for a long stretch of what appears to be pretty slow growth,” said Hyatt. “I don’t see interest rates changing much unless there’s some tragic terrorist event.”
“Bill Clinton started leaning to the left on a lot of economic issues, but he came back to the middle,” George said. He speculated that growth could remain stagnant for a long time without the influence of “something big” on the order of the surges occasioned by the across-the-board tax cuts implemented by presidents Kennedy and Reagan.
“I think eventually we’re in a recession,” Gibbons said. “There’s going to be no ability for the Fed to do anything about a recession if they don’t raise rates soon.”
Despite disagreeing with Hillary Clinton on many issues, Griswold gave her points for predictability. “We do have the Constitution and we’ve got the balance of powers, so a lot will depend on the Congress,” Griswold said. “In general, the future of our country is bright, but the capacity to screw it up is there. No country is guaranteed success and prosperity, so getting our policies right is very important.”