In the latter part of 2025, Donald Trump has implemented the high tariffs and taxes he promised to impose on foreign goods, particularly on Chinese imports. Despite Trump’s insistence to the contrary, these tariffs have had the exact effect that many economists had anticipated: increased prices for American consumers.
Assume that your company depends on imported components, which could come from Mexico, China, or another location. What are you doing?
The executive branch has extensive latitude in determining tariffs under U.S. trade law, which also allows it to offer exclusions in certain circumstances. You then submit an application for one of those exemptions. Is your request going to be approved?
The conclusion should, in theory, be based on whether paying those tariffs actually causes hardship or jeopardizes American jobs. It’s safe to assume that other factors will come into play in real life. What is the amount of money you have given to Republicans? Do you host business getaways at Trump properties and golf courses?
This isn’t just idle guesswork on my part. Many companies requested exemptions from the substantial tariffs that Trump levied during his first term. Who obtained them? According to a recently released statistical analysis, businesses with Republican affiliations—as determined by their 2016 political contributions—had a much higher chance of having their applications accepted, while those with Democratic affiliations had a significantly lower chance.
Corrupting influence
However, that was just a small-scale practice run for what might happen. Although details are yet unknown, Trump’s tariff promises during the campaign were much more comprehensive and, in the case of China, much higher than anything we saw the first time around; political favoritism will likely be an order of magnitude bigger.
According to my understanding, the phrase “crony capitalism” was used to characterize the conditions in the Philippines during Ferdinand Marcos’ dictatorship, which lasted from 1965 to 1986. It depicts an economy where having the correct connections—often acquired by performing financial or political favors for those in authority—is more important for economic success than having competent management. For instance, according to Transparency International, companies closely associated with the ruling party control over 25% of the economy in Viktor Orban’s Hungary.
The arrival of crony capitalism in America is now highly probable.
Numerous studies have examined the likely macroeconomic effects of Trump’s tariffs, which will be extremely inflationary if they are even close to as much as he has said. However, it might be argued that their corrupting influence will eventually become an even more significant issue.
What makes tariffs more prone to cronyism than other forms of taxation? because there is a great deal of leeway for discretionary enforcement in the way they behave under our laws. Despite Andrew Mellon’s very dubious rebates in the 1920s, the Treasury secretary cannot just exclude his buddies from income taxes. However, the president has the authority to exempt allies from tariffs. Furthermore, does anyone think the Trump administration would be too moral to do so? Trump has boasted that he can manipulate the system and that he is smart since he doesn’t pay his fair amount of taxes.
Drag on growth
Under the incoming administration, will tariffs be the only significant potential source of crony capitalism? It’s unlikely. When you consider it, there will be plenty of opportunity for partiality in Trump’s deportation plans.
It appears that some of Trump’s advisors, most notably Stephen Miller, believe they can swiftly rid America of illegal immigration by apprehending millions of individuals and placing them in enormous detention centers. But even if you ignore legal concerns, this is most likely not feasible from a logistical standpoint. Years of haphazard enforcement efforts, including raids on different companies suspected of hiring such immigrants, are far more likely to occur.
However, what standards will determine which companies are prioritized for these raids and which are essentially exempted for years? What are your thoughts?
Of course, there’s more. For instance, Trump has indicated that he is prepared to revoke the licenses of television networks that, in his opinion, offer negative coverage.
What would happen to America if crony capitalism were to take over? It will undoubtedly be detrimental to democracy, both by securing a significant Republican financial edge and by ensuring that Trump will continue to get vocal business support regardless of the harm his policies cause. Additionally, it will benefit Trump and his supporters.
In addition, a system that gives companies incentives based on their political ties will undoubtedly hinder economic expansion. Pervasive cronyism is cited in numerous attempts to explain Italy’s poor economic performance during the past generation. According to a recent study, populist governments—whether on the left or the right—that are often crony capitalists also experience a long-term growth penalty of roughly 1% year.
We’ll find out in time. The data points to a potential shift in the rules of success in American industry, and not in a positive way.
Paul Krugman writes columns for the New York Times.
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