Why US CEOs are Naive to Ignore Trade War & Recession Risks

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us business leader ignore recession trade war

US business leaders seem to be ignoring the looming risks of the US-China trade war and a potential recession. | Source: Shutterstock

Global CEOs, especially in Asia and Latin America are worrying about the risk of recession. US business leaders, however, appear more concerned about cybersecurity and competition than a potential economic slowdown or the ongoing US-China trade war.

A survey of CEOs by US non-profit The Conference Board, founded in 1916, reveals that — at a global level — CEOs are worried about recession and trade. Strikingly, though, US CEOs completely buck that trend by putting cybersecurity, followed by “new competitors,” as their most important external issues.

Are US CEOs Blindly Following Donald Trump’s Rhetoric?

Could it be that CEOs have these priorities because they are listening to US President Donald Trump? Are they worrying about competition because Trump believes countries like China, with incredibly high levels of innovation, are taking an unfair advantage over the US?

Trump is not just concerned about business competition but also that overall, other countries “seek to challenge American values, influence and wealth.” This from a speech in Washington in 2017 where Trump also said:

Whether we like it or not, we are engaged in a new era of competition. American success is not a foregone conclusion.

Maybe the constant calls of “unfair” in regards to the treatment of US businesses and products in the global market are having an effect. Similarly, is cybersecurity a concern partly because Trump believes technology giants like Huawei are a threat to US security?

Unfortunately, the results of The Conference Board survey don’t go into detail about why CEOs have their priorities aligned thus. However, the answer may lie in recent events.

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There is an executive order under consideration that would block US companies from buying equipment from some foreign telecommunications product makers like Huawei and ZTE. The order stems from concerns the equipment could be used by these companies to spy on the US on behalf of China. In 2018, consumers were warned against buying Huawei phones, and they are now banned from sale on US military bases.

Of course, cybersecurity has wider reaching implications. But with concerns that Russia and China may have influenced US elections and hacked into US systems, these topics are constantly in the news. Is it any wonder US CEOs have cybersecurity on their minds?

US Business Leaders Naive Compared to China, Japan

Economic contraction in China is clear from recent data. The Japanese economy also contracted by 0.6% in the third quarter of 2018. JP Morgan CEO Jamie Dimon recently said the current shutdown could cut US growth to zero.

Even before this, there were signs that the US economy could be reaching a tipping point, take stock market volatility at the end of 2018 for example. Even in early 2018 experts were picking up signs of a potential US and global recession.  So why, financiers like Dimon aside, are CEOs less concerned about these signs than their international counterparts?

Well, Trump dismisses the threat of recession and the impact of trade disputes and tariffs on the US economy by saying that it’s stronger than ever. In December 2018, he blamed the US Federal Reserve for market volatility:

The only problem our economy has is the Fed. They don’t have a feel for the market.

The US economy, if it contracts, will be later to do so than Asian economies. But, it seems odd that a recession or the impact of trade are not bigger concerns for US CEOs.

Global CEOs See Recession as Biggest Threat

According to The Conference Board survey, business leaders in Japan, China, and Latin America cite the risk of recession as their greatest threat. It’s second on the list for European CEOs, and third on the list for their US counterparts. The Conference Board surveyed 800 CEOs and 600 other executives. A year ago, says the think-tank, recession was an “afterthought,” ranking 19th in business concerns.

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The Conference Board Survey Findings: External Challenges to Businesses, as per their CEOs

Bart van Ark, chief economist of The Conference Board, concludes the survey report thus:

While CEOs are quite anxious about the external challenges the global economy poses to their businesses right now, the survey results suggest they’re aware of the need to stay focused on the longer-term disruptive forces impacting their future go-to-market plans.

Van Ark believes business awareness will reinforce a need for new business models, something that could be neglected “if and when the economy starts slowing.”

Naivety Could be an Advantage for US Businesses

The survey may actually reveal that US business leaders are more confident than their counterparts. Uncertainty itself can fuel a recession. Confidence, even it is fed by Trump’s rhetoric, could mean that US CEOs stay bold and expansive in their strategies. This could itself hold back a recession.

One US business leader, Krishna Memani, chief investment officer at OppenheimerFunds, believes that as long as there is a positive resolution for trade between the US and China, a recession in the next five years is unlikely.

Disclaimer: The views expressed in the article are solely those of the author and do not represent those of, nor should they be attributed to, CCN.

Featured Image from Shutterstock

Source: https://www.ccn.com/why-ceos-are-naive-to-ignore-trade-war-recession-risks/


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