It only hurts when I think about it.

Photographer: JEFF KOWALSKY/Bloomberg

Trump's Nationalization by Twitter

Noah Smith is a Bloomberg View columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion.
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Here's a question: When is a company considered privately owned? There’s ownership, and there’s control. If a company’s shareholders and executives don’t have control over the day-to-day operations of their organization -- if the government calls them up and tells them what to do -- is it really private?

Most big companies in China fall into this gray zone. Although the official state-owned enterprises have shrunk as a percentage of the economy, the government directly or indirectly owns controlling interests in most privately held businesses, and large minority stakes in the rest. This frees China’s various government officials from the day-to-day operation of the companies, but allows them to intervene on anything of political interest -- or to use the companies as fronts for corruption.

Things are even more ambiguous in Japan and Europe. In these countries, powerful bureaucracies use a combination of closed-door jawboning and publicly issued guidelines to try to make companies do what they want. Sometimes, as in Japan right now, the order is to focus more on profitability; following that order will make Japanese companies act a bit more like those in the U.S. But other times, the directives can suit the non-economic purposes of the state.

And then we have the example of Donald Trump. From Carrier and Ford Motor Co. to Fiat Chrysler Automobiles and Toyota Motor Corp., the president-elect has made it clear that he intends to use public browbeating and threats to get companies to keep jobs in the U.S. His followers call this deal-making, but it’s only a deal in the sense that a mugger makes a deal with his victim -- money in exchange for not inflicting bodily harm.

What Trump’s policy of rule by personal intimidation really amounts to is a hidden partial nationalization of America’s large companies -- and even of companies in foreign countries that do a lot of business in the U.S. Any corporation prominent enough to attract the president’s attention will have to tailor its strategic decisions to please him.

So far, Trump has focused his ire on companies that transfer jobs out of the U.S. (with little attention to whether they create different jobs in the U.S. to compensate). But what will he demand that businesses do tomorrow? Keep prices low in order to mask the negative effects of a trade war? Stop doing business with countries whose leaders have tweeted or said disapproving things about Trump? Stop putting advertisements in media outlets that publish stories criticizing the president? Cut off ties with businesses owned by rich people who have given money to Democrats? The possibilities are boundless.

The effect on the U.S. economy, however, is unlikely to be salutary. Yes, some companies will avoid offshoring due to fear of Trump. In some cases, this will result in workers getting a larger share of the pie, and owners getting less. In other cases, the companies won’t be able to keep up in competitive global markets, and will have to downsize -- American jobs won’t be offshored, they will just vanish.

But an even bigger effect will simply be higher uncertainty. Since no one will know where Trump’s Zeus-like thunderbolts will strike next, investing for the future will become a fraught proposition. Businesses that under Barack Obama or George W. Bush or Bill Clinton would have been able to plan for the next five or 10 years will find themselves paralyzed by the chance that Trump might cast his baleful gaze on them next week.

Of course, this will be bad for productivity, for employment, and for essentially every aspect of the economy. Just how bad is an open question. If Trump spends most of his time fighting with Congress, battling the news media on Twitter, or throwing lavish parties, the effect of his threats on American business will be minimal. But if he decides to use his bully pulpit to effectively transform the U.S. economy into a Trump subsidiary, watch out.

This isn't good policy. Good policy is based on a predictable systems of laws and rules, not random and personal threats. The Republican Party, which used to style itself as the party of business, has now yoked itself to a man for whom business, politics and personal vendetta are one and the same. As a result, a de facto form of nationalization looms.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Noah Smith at nsmith150@bloomberg.net

To contact the editor responsible for this story:
James Greiff at jgreiff@bloomberg.net