How has democratic erosion harmed businesses?

In the past week, President Trump has attempted to remove a member of the Federal Reserve Board of Governors and pressed a Fortune 500 company to give a 10% stake to the government. These are only the latest in a long string of decisions, from science funding cuts to tariffs to firing the Bureau of Labor Statistics Commissioner, that risk the nation’s economic health.   

As one of us wrote back in the spring of 2024, democratic erosion has extraordinarily large and negative economic consequences. The ascent of populist leaders, who tend to undermine institutions, makes a country’s GDP per capita about 10 percent lower over 15 years than it would have been otherwise. Democracies have higher economic growth, economists suggest, because they are better than autocracies at guiding the economy, investing in public goods, and channeling political disagreements in ways that avoid violence. Democracy is not just a moral good; it is also better for a nation’s bottom line. 

Our 2024 article identified seven types of businesses at highest risk from democratic decline. Some 200-plus days into the Trump administration, we are beginning to see those effects playing out.  

Within months of returning to power, Trump issued a series of executive orders targeting law firms for their litigation positions, their employment of lawyers disfavored by the administration, and the political affiliation of their clients. The administration attempted to prevent agencies from contracting with the firms and hiring their lawyers. It also attempted to limit the firms’ access to federal buildings, presumably including federal courthouses. Some law firms, viewing the administration as an existential threat to their businesses, acquiesced to this pressure and negotiated risky deals, with some pledging hundreds of millions of dollars in pro bono work to the administration’s preferred causes.

Reliable government data is one of the most significant, though often underappreciated, public goods, and the quality of that data can decline rapidly in authoritarian nations.  The Trump administration attempted to remove climate data that farmers rely upon and has directed NASA employees to create atypical plans for ending satellite missions that help forecast crop yields and drought. And, of course, after the Bureau of Labor Statistics published a weak jobs report, Trump fired the Bureau’s Commissioner and picked a controversial political ally as her replacement. Such an action is deeply dangerous; as our colleague Aaron Klein has noted, “If American savers and businesses lose confidence in the accuracy of data around banks and the financial system, it could result in a financial crisis.”

Unilateral decisions by the president to impose tariffs and regulatory changes have disrupted businesses’ ability to plan. Economic policy uncertainty spiked in April and remains elevated. In the pharmaceutical and biotechnology industries, business deals have stalled because of tariffs, concerns about the ability of the FDA to be a predictable regulator after workforce cuts, and major funding cuts to research. The tumultuous imposition of the tariffs also disrupted the business planning of companies reliant on imports.

Scientists are increasingly looking for jobs outside of the United States because of the Trump administration’s research funding cuts. Universities have limited the number of graduate students they admit in reaction to funding uncertainty. And the administration’s hostility to immigrants and international students threatens foreign-born doctoral degree holders who make up a sizeable portion – in some sectors, a majority – of the science and engineering workforce. As our colleagues Judy Wang and Nicol Turner Lee note, this hostility threatens the United States’ tech industries. While the effects may not be immediately visible, companies depending on these highly educated workers may face labor shortages.

In addition to Trump’s various personal lawsuits against media organizations, the administration has excluded major media organizations from news events and government offices. The Federal Communications Commission (FCC) also began investigations into several media organizations and revived a complaint against 60 Minutes for its editing of an interview with Kamala Harris. As the FCC chair has put it, “President Trump is fundamentally reshaping the media landscape.” The FCC has also applied pressure to Skydance and Paramount, approving a merger between the companies only after Skydance committed to implementing a bias monitor at CBS and prohibiting DEI programs. The pressure on media companies appears to have trickled down: the chief of 60 Minutes quit because of corporate pressure interfering with editorial decisions.

The biomedical industry has suffered amid uncertainty about health policy under the administration. Part of this uncertainty was driven by the promotion of a vaccine opponent to the head of the Department of Health and Human Services. Over 100 leaders in biopharma warned in an open letter that undermining graduate student funding, cancelling contracts and grants, and slowing basic research would harm their industries. Companies in biotech hotspots like Boston and Seattle have been hit hard by the funding cuts; in at least one case, the FDA missed a drug approval deadline because of resource constraints exacerbated by the Trump administration’s mass firing of federal employees.

The United States is expected to lose over $12 billion in tourism spending this year, fueled by tourists’ antipathy toward protectionism and fear of immigration detention. These factors, along with Trump’s statements about annexing Canada as a 51st state, have led Canadian tourism to the United States to decline by 24% in the first half of 2025.

Given what we know about democratic backsliding, these economic developments come as no surprise (though they have been occurring more rapidly than many observers, including us, anticipated last year). And yet business has hardly responded to the upheaval—a failure that is of a piece with the broader underreaction of civil society to America’s sharp autocratic lurch. Indeed, many business leaders are actively attempting to win favor with the administration. Understanding precisely why business has responded in this way is worthy of further study—and will be the subject of our next article.