Is the Trump 2.0 agenda deliberately aimed at companies' bottom line?

Corporate America’s profits are slipping. Last week, the Bureau of Economic Analysis confirmed that corporate post-tax profits dropped in the first quarter by 3.3% — by far their biggest fall since the pandemic.

When companies make less money, it’s often a harbinger of an economic slowdown. In this case, it also raises the more profound question of whether the Trump 2.0 agenda is deliberately aimed at companies’ bottom line.

This sounds outlandish. The S&P 500 just hit an all-time high, so Corporate USA is worth more than ever. But it makes sense. After-tax profits account for an unprecedented 10.7% of gross domestic product, when in the last 50 years of the 20th century, they never exceeded 8%. The only time approaching their current share of the economy was in 1929 on the eve of the Great Crash. If the nation is to deal with inequality, money must be redistributed from somewhere; corporate profits are an obvious source of funds.

Republicans Turn on the Corporation
Elements in the Trump coalition have long held an anti-corporate agenda. A few months ago, Adrian Wooldridge argued in this space that MAGA wanted to “end capitalism as we know it.” Specifically, he contended that many leaders in the Trump coalition wanted to “deconstruct the great workhorse of American capitalism: the publicly owned and professionally managed corporation.”

These are strong words, but sound understated compared to the writings of Kevin Roberts, head of the Heritage Foundation and a lead creator of Project 2025, an ambitious and radical agenda for Trump 2.0. He argues that BlackRock, the world’s largest fund manager and a pillar of contemporary US capitalism, is “decadent and rootless” and should be burned to the ground — a fate it should share with the Boy Scouts of America and the Chinese Communist Party.

For Marjorie Taylor Greene, an outspoken Trump supporter in Congress, “the way corporations have conducted themselves, I’ve always called it corporate communism.” She has urged government investigations of companies that stopped donations to Republicans after the Jan. 6, 2021, attack on Congress.

Steve Bannon, Trump’s campaign chief in 2016, complained to Semafor that only $500 billion of the US government’s $4.5 trillion came from corporate taxes. “Since 2008, $200 billion has gone into stock repurchases. If that had gone into plants and equipment, think what that would have done for the country.”

He advocated a “dramatic increase” in taxes on corporations and the wealthy. “For getting our guys’ taxes cut, we’ve got to cut spending, which they’re gonna resist. Where does the tax revenue come from? Corporations and the wealthy.”

MAGA Versus Companies
Several current policies are not explicitly anti-corporate, but more or less guaranteed to have that effect.

Michel Lerner, head of the HOLT analytical service at UBS, points out that in data going back to 1870, the correlation between tariffs and companies’ earnings yield (a measure of their core profitability) has been consistent. Tariffs hurt companies. Looking at the cash flow return on investment since 1950, it has risen (meaning companies grew more profitable) directly in line with rises in imports as a proportion of GDP.

Research done jointly by Societe Generale Cross-Asset and Bernstein demonstrates that globalization has benefited US companies not only through international sales (40% of revenues for S&P 500 companies) but also through lower costs. In 2001, when China joined the World Trade Organization, the S&P’s cost of goods sold accounted for 70% of the revenues generated by selling them. It had been around this level for many years. That has now dropped to 63% — a massive improvement of 7 percentage points in this basic margin. Technology, consumer and industrial firms have gained the most — and stand to lose the most from deglobalization.

Trump 2.0 policies so far have redistributed from shareholders to workers. Vincent Deluard, macro strategist at StoneX Financial, points out that the only tax not cut by the One Big Beautiful Bill currently before Congress is corporate income tax. “The grand bargain of the Big Beautiful Bill is to compensate for the tariffs’ inflationary shock with personal income tax cuts,” he says. “If exchange-rate adjustments, foreigners, and consumers do not pay for tariffs, corporate profits will.”

Beyond that, eliminating illegal immigration and restricting foreign students raises labor costs. Threats to tax foreign investments in section 899 of the bill — which now appear likely to be withdrawn — risked reducing capital inflows and make it harder to raise finance.

The Case Corporates Must Answer
Corporations’ own behavior has contributed to these trends. Over history, their share of GDP has tended to oscillate with the economy, rising when labor organizations’ negotiating power is weak. But in this century, their profits grew less susceptible to the economic cycle, surging higher after the pandemic.

Albert Edwards, a macro strategist for SocGen, argues that they pushed through margin-expanding price increases “under the cover of two key events, namely 1) supply constraints in the aftermath of the Covid pandemic, and 2) commodity cost-push pressures after Russia’s invasion of Ukraine.”

Margins matter more in an environment where people are conscious of the damage inflation can do to their standard of living. That gave rise to the concept of “greedflation” — which Edwards thinks is deserved. Politicians have increasingly felt emboldened to intervene in companies’ pricing decisions, something that’s been off-limits since Richard Nixon’s ill-fated price controls in the early 1970s. Kamala Harris proposed “anti-gouging” policies in her unsuccessful presidential campaign; more recently, Trump forced a climbdown by companies like Amazon that proposed to itemize the impact of tariffs on the prices they charged.

Rising to the top of a company never used to be a ladder to mega-wealth. That was reserved for entrepreneurs who founded their own firms. Modern executive pay has changed that and allowed CEOs to become billionaires by meeting unchallenging targets for their share price. The gulf between their pay and workers’ wages shrieks of injustice; according to the Economic Policy Institute, the CEO-to-worker compensation ratio reached 399-1 in 2021; in 1965, it was only 20-1. From 2019 to 2021, CEO pay rose 30.3% while those workers who kept their jobs through the pandemic got a raise of 3.9%.

This can easily be dismissed as the politics of envy, but executive compensation now arguably skews the entire economy. Andrew Smithers, a veteran London-based fund manager and economist, and nobody’s idea of a leftist, has long inveighed against the bonus culture, which he holds responsible for a disastrous misallocation of capital.

Smithers argued that America’s problem was “two decades of underinvestment”:

The major cause has been a change in the way company managements are paid. The 1990s saw the arrival of the bonus culture, which massively shifted management incentives and thus changed management behavior. Sadly, the change did immense damage to the economy. Managements were encouraged to invest less and, with lower investment, growth faltered.

He argues that companies increased their investment in response to corporate tax cuts in earlier generations, but stopped doing this once executives were paid to prioritize their share price. That led them to cut back on investment, spending money on acquisitions and share buybacks. That dampened growth, but also ensured better returns in the short run for shareholders.

As investing in stocks is still primarily a game for those who are already wealthy, this stoked inequality still further. Opposition to high executive pay is often couched as a populist class-warrior position, but there is far more to it than that.

The Politics of Profits
The Trump coalition always had anti-corporate elements, but this didn’t stop his first administration from delivering for the private sector in a big way. In 2024, Trump added the support of Silicon Valley, and took the oath of office for the second time in front of a serried rank of billionaires. But he’s also losing old corporate supporters.

Charles Koch, the industrialist hated by Democrats as the architect of libertarian Republican policies, has lost patience. After funding Nikki Haley’s run against Trump in last year’s Republican primaries, he told the Cato Institute earlier this year that too many institutions had lost their libertarian principles, and “people have forgotten that when principles are lost, so are freedoms.” How will people like Koch respond if the administration clamps down on companies?

America’s key political developments tend to happen within parties, not between them. The current Republican coalition is no stranger in concept than Lyndon Johnson’s Democratic Party of the 1960s, the New Deal coalition that combined multi-racial liberals from the North and West with pro-segregationist whites from the South. Once Johnson decided to choose one wing over the other, with his civil rights acts, that alliance disintegrated.

For now, the MAGA coalition includes both America’s largest corporations and their most trenchant critics. The policy choices of the next few months, and their effects, will determine whether that can continue.